Banking Awareness 09 : Local Area Banks.

Candidates, who are willing to know the detailed information about the Local Area Banks? This is the right article which provides you the clean and clear information about the Local Area Banks. The Local Area Banks are small private banks, conceived as low-cost structures which would provide efficient and competitive financial intermediation services in a limited area of operation, i.e: primarily in rural and semi-urban areas, comprising three contiguous districts.

Local Area Banks were set up as per the Government of India Scheme which is announced on Aug-1996. This is the intention of the government which was set up new private local banks with the jurisdiction over two or three contiguous districts. The main objective of establishing the local area banks was to enable the mobilization of the rural savings by the local institutions and make them available for investments in the local areas. This is the major idea which to bridge the gaps in the credit availability in the rural and semi-urban areas,  thereby the strengthening of the institutional credit mechanism in such areas.

Key Features of the Local Area Banks:- 

These are some of the key features of the Local Area of Banks, they are:- 

• Each local Area bank is registered as a public limited company under the Companies Act, 1956. However, they are licensed under the Banking Regulation.
• The Local Area Banks are the only type of Non-Scheduled Banks in India. 
• Local Areas have Jurisdiction over a minimum of three Contiguous districts, and their basic functions are to mobilize funds in rural and semi-urban areas.
• The Minimum Startup- the capital of a LAB was fixed at Rs.5 crores and the promoters were asked to bring entire minimum share capital up-front.
• The Local Areas Banks are subjected to prudential norms, accounting policies, and other policies as  Stipulated by the RBI.
• Each Local Area Bank is allowed to open a branch in only one urban center per District and rest of the branches were allowed to be opened in the rural and semi-urban centers subject to requisite clearance in respect of rural branches from the District Consultative Committee. 

Functions Of Local Area Banks:- 

• The Local Area Banks can do normal banking business but the majority function is to finance agriculture and allied activities, small scale industries, agro-industries and trading/ non-farm activities in the rural and semi-urban areas.
• These banks have to give 40% of the total credit to the priority sector, of which 10% is to be given to weaker sections of the society.

Current Functionings of Local Area Banks in India:-

There were about Four Local Area Banks in India, which exists in the form of Non-scheduled banks, they are:-