Full Form of LAB – Local Area Bank
The full form of LAB is Local Area Bank. Local Area Banks (LAB) can be defined as banks that were set up by the Government of India solely with the purpose of enabling the local institutions to pool and mobilize the rural savings and ensuring that these savings are made available for investment concerning needs, or in other words, these banks help in bridging the existing gaps with respect to the credit availability and thus, strengthening the credit mechanism in the local areas (rural as well as semi-urban areas).
Features of LAB
The features of a local area bank are provided and discussed as follows-
- LABs are registered under the Companies Act, 1956 as a public limited entity.
- A LAB is licensed under the BRA or Banking Regulation Act, 1949. This means that the LAB will have to operate as per the Banking Regulation Act, 1949.
- A LAB is subjected to accounting policies, prudential norms, and such other policies as laid by the Reserve Bank of India.
- A LAB is currently one and only type of Non-scheduled bank in India.
- Each LAB is granted with permission to open a branch in a single urban center in each district and remaining branches to be opened in rural and semi-urban centers.
- Local area bank is set up as a private limited entity under the private sector in order to respond to the credit as well as other financial needs and requirements of the locals and that too in a competitive form.
- The banking activities of LAB are regulated and monitored by the RBI or the Reserve Bank of India.
- LAB offers loans to locals for the purpose of agricultural and other similar activities.
- LAB is set up by a corporate house, individual, trust, society, etc with a paid-up capital of at least INR 5 Crores.
- LABs are usually set up in a district town and these are required to operate within their pre-determined area which in normal cases includes a maximum of 3 contiguous district towns.
- In a local area bank system, the promoters can be firms, societies or individuals.
Objectives of LAB
The objectives of a local area bank are provided and discussed as follows-
- The prime objective of a local area bank or a LAB is to cater and respond to the credit and other financial related needs as well as requirements of the locals.
- To undertake and perform all types of activities and functions pertaining to banking that is usually performed by commercial banks in its ordinary course of business as per the banking rules and regulations.
- To enable the local institutions to mobilize the rural savings and use the same for purposes pertaining to investments in the local areas.
- To strengthen the institutional credit function in rural as well as semi-urban areas by bridging the existing gaps pertaining to the credit availability in these areas.
- To finance agricultural and allied activities, agro-industries, small scale industries and non-farming or trading activities in the rural as well as semi-urban areas.
The functions of a local area bank are provided and discussed as follows-
- The most important function of a LAB is to support the local customers by offering them loans for agriculture and related activities, small scale industries, agro-based industries, trading as well as non-farming activities.
- Another primary function is to perform all types of normal banking activities that are performed by commercial banks in their ordinary course of banking function as per the banking norms and regulations within its own jurisdiction.
- LAB is required to make at least forty percent of the total credit available to the priority or the targeted sector out of which ten percent is required to be given to the weaker sector of the society.
Examples of LAB
The four examples of a local area bank are provided and discussed as follows-
- Coastal LAB Limited – This LAB was established on December 27, 1999. It has its headquarters located at Vijaywada, Andhra Pradesh and it currently operates in 3 contiguous district towns viz. West Godavari, Krishna, and Guntur.
- Capital LAB Limited – This LAB was established on January 14, 2000. It has its headquarters located in Phagwara, Punjab and it currently operates in 3 contiguous district towns viz. Hoshiarpur, Kapurthala, and Jalandhar in Punjab.
- Krishna Bhima Samruddhi LAB Limited – This LAB was established on February 28, 2001. It has its headquarters located in Mahbubnagar, Andhra Pradesh and it currently operates in 3 contiguous district towns of Mahbubnagar, Gulbarga, and Raichur.
- Subhadra LAB Limited, Kolhapur – It is the smallest of all LABs. It has its headquarters located in Kolhapur and it has only eight branches at the moment.
LAB is the short form used to address Local Area Banks. It was established in August 1996. LAB can be set up by a trust, society, corporate bank, and an individual too. LABs are registered under the Companies Act, 1956. The minimum paid-up capital required for setting up LAB is INR 5 crores. LABs can be set up in contiguous district towns and these are required to function in their own area which usually does not exceed 3 district towns.
The banking activities are regulated and controlled by the RBI or Reserve Bank of India. Banking Regulation Act, 1949 is totally applicable in the case of LAB. They are formed with an objective to bridge the gap between the credit requirements and availability in the rural and semi-urban areas. The four types of Local area banks are Coastal, Capital, Krishna Bhima Samruddhi and Subhadra Local Area Bank Limited, Kolhapur.
This has been a guide to the Full Form of LAB and its definition. Here we discuss features, objectives of Local Area Bank along with an example, and functions. You may refer to the following articles to learn more about finance –