The Union Budget recognised the concept of Local Area Banks (LABs) in August 1990. LABs were established under the local area bank scheme, which suggested setting up new private local banks with 2-3 contiguous districts. This article provides a list of local area banks in India. In this article, the readers will learn about their headquarters and contiguous district and other important details. 

Meaning of a Local Area Bank

Local area banks are referred to as small private banks with low-cost structures that provide financial services limited by the area of operation. These banks usually function in rural and semi-urban areas and three main contiguous districts.

The main objective of the local area banks is to mobilise rural savings through local institutions. They are also set up to give rise to new investment opportunities in the same local areas. Initially introduced in the Union Budget in 1996, local area banks were created to provide financial services in local areas of their contiguous districts. These banks operate in the form of non-scheduled banks, and their activities are regulated and controlled by the Reserve Bank of India. 

Local Area Banks in India

As per the latest information available, four LAB (Local area banks) are known in India. Below are four local area banks:

1. Coastal Local Area Bank Ltd

• It was the first local area bank to get a licence from the Reserve Bank of India in 1999. 
• The bank was established on December 27, 1999, and started its operations in the same year. It has been providing its services for the past two decades in the areas it is allowed to provide financial services. 
• It is a non-government company registered with the Registrar of Companies with an authorised share capital of Rs. 450,000,000.
• The bank has its headquarters in Vijayawada, Andhra Pradesh. 
• Its areas of operations (contiguous districts) include Krishna, Guntur and West Godavari. 

2. Krishna Bhima Samruddhi Local Area Bank Ltd

• Krishna Bhima Samruddhi Local Area Bank Ltd is a public company incorporated as a local area bank in 1999.
• Krishna Bhima Samruddhi Local area bank was incorporated on February 19, 1999, and is registered with the Registrar of Companies as a non-government company. 
• The company has an authorised share capital of Rs. 25,00,00,000. 
• Its headquarters are located in Hyderabad, Telangana.
• As of today, the bank operates in 12 districts in Telangana, Andhra Pradesh and Karnataka.
• The bank has 14 correspondent outlets and 29 branches spread across the three core areas of its operations. 

3. Capital Local Area Bank Ltd

• It is regarded as the largest local area bank in India, and its operations are based in Jalandhar, Punjab. 
• The bank completed its 16 years of operations in the year 2016.
• The three major contiguous districts of Capital Local Area Bank Ltd include Jalandhar, Kapurthala and Hoshiarpur. 
• It extended its operations in the districts of Ludhiana and Amritsar in January 2013 after getting approval from RBI. 
• Approximately 80% of its fore business is based in semi-urban and rural areas.

Note: As per the details outlined in an official press release by the Reserve Bank of India on 27 April 2016, the bank ceased to exist as a local area bank. It was because the bank was converted into a small finance bank upon getting approval from RBI to carry on its operations in the new venture. Here are a few more essential points to note concerning this conversion:

• The bank got its licence on 4 March 2016 to begin its operations as a small finance Bank.
• India’s first local area bank to get converted into a small finance bank. 
• The Reserve Bank of India granted in-principle approval to allow ten other entities to start their operations at small finance banks. 

4. Subhadra Local Area Bank Ltd. Kolhapur 

• On April 10, 2001, the bank was incorporated as a registered non-scheduled public company with the Registrar of Companies.
• The bank has its head office in Kolhapur. 

A few important points to note:

• In one of its official press releases in December 2020, the Reserve Bank of India cancelled the banking licence of Subhadra Local Area Bank Limited Kolhapur. 
• The main reason RBI cancelled the bank’s licence is that its activities were detrimental to the interest of its depositors. 
• The central bank also notified that the bank is likely to affect the public interest if it continues to carry on its business in the same manner. 
• Although the liquidity status of the bank was found satisfactory to pay all the existing depositors, the licence was still cancelled due to the ongoing allegations.

Conclusion

In conclusion, it can be said that the government of India set up the local area banks to mobilise rural savings. Currently, there are four LABs (Local area banks) functioning as financial institutions, and their activities are governed as per the regulations of RBI. However, it is essential to note that a few of these banks later converted into small finance banks. But, on the other hand, a few of these got their licence cancelled by the Reserve Bank of India.