Objectives of Local Area Banks

The following are some main objectives of Local Area Bank:

1. Financial Inclusion: LABs bring a formal financial system to the people of the area where the traditional banks are not set up. Their objective is to benefit people by saving their money in a safe place so that they can use it whenever they need it. In this, they create opportunities for Financial inclusion.

2. Economic Development: By providing loans and lending to small businesses in the area, LAN promotes the economic development of that area. They provide financial support to budding entrepreneurs and help existing businesses expand.

3. Savings Mobilisation: LAB promotes financial security by encouraging people to save money for better future use.

4. Credit Disbursement: They facilitate the flow of credit to sectors that are crucial for local development, such as agriculture, small industries, and rural infrastructure.

5. Community Development: LABs often engage in community development initiatives. For example, there are several initiatives taken to help poor people in education, providing benefits in health care services, etc.

Local Area Banks are such banks that are set up for a small area and operate in that area. Local Area Banks function just like the other big banks, which means completing the financial requirements, for example, storing money, lending money, withdrawing money, etc., of the area that’s provided to each Local Area Bank. Local Area Banks are also referred to as LAB. The full form of LAB is Local Area Bank.

Local Area Banks started in India in 1996, as a scheme of the union budget to make small private banks for people in those areas who don’t have access to banks. They are regulated by guidelines of the Reserve Bank of India, which was set up in August 1996. LABs are required to have a minimum paid-up capital of Rs. 5 crore, with 25% contributed by the promoter group and the rest by the public. The license of these banks is issued by RBI. The first four banks that were issued in 1996-1997 were Coastal Local Area Bank Ltd., Krishna Bhima Samruddhi Local Area Bank Ltd., Capital Local Area Bank Ltd., and Subhadra Local Area Bank Ltd.