Full Form of LAB

What Is The Full Form of LAB?

The full form of LAB is Local Area Bank, which is set up by the Government of India solely to enable the local institutions to pool and mobilize rural savings and ensure that these savings are made available for investment concerning needs. These banks help bridge the existing gaps concerning credit availability.

The Reserve Bank of India supervises, regulates, and controls these banks and ensures they function as expected and help the local population enjoy smooth banking services. It, in short, strengthens the credit mechanism in the local areas (rural and semi-urban areas).

Full Form Of LAB Explained

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 individual. LABs are registered under the Companies Act of 1956. The minimum paid-up capital required for setting up LAB is INR 5 crores. One can set up LABs in contiguous district towns, which are required to function in their area, which usually does not exceed 3 district towns.

The Department of Banking Operations and Development regulates and controls banking activities under the Banking Regulation Act of 1949, and the Reserve Bank of India Act of 1934. It not only takes care of the LABs but also looks after the commercial banks to ensure they work per the regulations and guidelines.

The Local Area Banks or LABs bridge the gap between credit requirements and availability in 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.

Features

The features of a Local Area Bank are as follows:

• LABs are registered under the Companies Act 1956, as a public-limited entity.
• A LAB licensed under the BRA or Banking Regulation Act, 1949. It means the LAB will have to operate per the Banking Regulation Act 1949.
• A LAB is subjected to accounting policies, prudential norms, and other policies as laid by the Reserve Bank of India.
• A LAB is currently the only type of non-scheduled bank in India.
• Each LAB granted permission to open a branch in a single urban center in each district. The remaining branches are open in rural and semi-urban centers.
• Local Area Bank is set up as a private limited entity under the private sector to respond to the local's credit and other financial needs and requirements, 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 agricultural and other similar activities.
• A corporate house sets up LAB, individual, trust, society, etc., with a paid-up capital of at least INR 5 Crores.
• Usually, LABs are set in a district town. These are required to operate within their predetermined 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

The objectives of a Local Area Bank are as follows:

• The prime objective of a Local Area Bank or a LAB is to cater to the credit and other financial-related needs and requirements of the locals.
• To undertake and perform all activities and functions about banking that commercial banks usually perform in their 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 investments in the local areas.
• To strengthen the institutional credit function in rural and semi-urban areas by bridging the existing gaps in the credit availability in these areas.
• To finance agricultural and allied activities, agro-industries, small-scale industries, and non-farming or trading activities in rural and semi-urban areas.

Functions

The functions of a Local Area Bank are as follows:

• The most important function of a LAB is to support local customers by offering them loans for agriculture and related activities, small-scale industries, agro-based industries, trading, and non-farming activities.
• Another primary function is to perform all types of normal banking activities performed by commercial banks in their ordinary banking course per the banking norms and regulations within its jurisdiction.
• LAB must make at least forty percent of the total credit available to the priority or the targeted sector, out of which it must give ten percent to the weaker sector of society.

Examples

The four examples of a Local Area Bank are as follows:

• Coastal LAB Limited - It was established on December 27, 1999. Its headquarters is at Vijayawada, Andhra Pradesh. It currently operates in 3 contiguous district towns, viz. West Godavari, Krishna, and Guntur.
• Capital LAB Limited - It was established on January 14, 2000. Its headquarters is in Phagwara, Punjab. It currently operates in 3 contiguous district towns viz. Hoshiarpur, Kapurthala, and Jalandhar in Punjab.
• Krishna Bhima Samruddhi LAB Limited - It was established on February 28, 2001. Its headquarters is in Mahbubnagar, Andhra Pradesh. It currently operates in 3 contiguous district towns of Mahbubnagar, Gulbarga, and Raichur.
• Subhadra LAB Limited, Kolhapur - It is the smallest of all LABs. Its headquarters are in Kolhapur. It currently has only eight branches.

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