You are here
Home > Banking > Less-known local area banks

Less-known local area banks

One bank per state would be the norm. The winds of change will blow away the remaining local area banks.

In India, three local area banks are rarely in the news. Started in the late 1990s, they operate out of Andhra Pradesh, Telangana, Karnataka, and Maharashtra and have 91 branches in all. With the merger wave sweeping the banking sector, it is difficult to visualise the survival of these banks.


The objective of setting up LABs in the private sector was, “with a view to providing institutional mechanisms for promoting rural savings as well as for the provision of credit for viable economic activities in the local areas.”
Coastal Local Area Bank Ltd was the first to kick off: it came up in Vijayawada in 1999. Krishna Bhima Samruddhi Local Area Bank Ltd began in Feb 2001 with operations from Mahboobnagar. In April 2001, Subhadra Local Area Bank Ltd was established in Kolhapur. These are the three survivors from the slew of LABs that mushroomed.
Among the other banks, Jalandhar-based Capital Local Area Bank became ‘Capital Small Finance Bank’ when the RBI licensed the new breed of small finance banks. South Gujarat Local Area Bank, which introduced the novelty of ‘seven days banking,’ was, in 2004, merged with Bank of Baroda. Vinayak Local Area Bank, operating in Sikar, Rajasthan ventured into financing big businesses outside its operational area and was closed in 2002.


The biggest among the three survived banks, Coastal Local Area Bank, has mobilised deposits worth Rs.452 crore and advanced Rs. 348 crore as of March 2018. Its net NPA ratio is 0.80 per cent. Operating with a credit-deposit ratio of 77 per cent, it earned a net profit of Rs.14 crore. However, it could not declare a dividend. Krishna Bhima Samruddhi Local Area Bank Ltd had total business of Rs. 344 crore in 2016-17. Having a credit-deposit ratio of 75 per cent, it could earn a net profit of Rs.2.40 crore. The net NPA ratio is moderate at 0.83 per cent. It has a network of 29 branches, stretching into two districts of Karnataka also. Subhadra Local Area Bank Ltd has 10 branches, mobilised total deposits of Rs.16.8 crore, effected advances of Rs.4.5 crore and reported a profit of Rs.91.5 lakh. The net NPA ratio is 1.83 per cent.
Some of the indicators relating to the official policy on restructuring the banking sector are based on ad hoc decisions. Nationally, there is the proposal for merger of gramin banks, aiming perhaps to have one such bank in each state. Their number would be brought down from 56 to about 25. Ten small finance banks have come up since 2016. The initial performance of these new banks is reasonably good. But how competent they would be in a situation where the big banks become bigger is doubtful. The India Post Payment Bank, thanks to its omnipresence through the post offices, is likely to take away some of the business of the smaller banks.

This site is using SEO Baclinks plugin created by Cocktail Family

Leave a Reply