Local area banks :

The Local Area Bank Scheme was introduced in 1996 pursuant to the announcement made by the then Finance Minister in his budget speech. These were set up as private local banks with jurisdiction over two or three contiguous districts to enable the mobilization of rural savings by local institutions and make them available for investments in the local areas. They are expected to bridge the gaps in credit availability and enhance the institutional credit framework in rural and semi-urban areas. Although the geographical area of operation of such banks is limited, they are allowed to perform all functions of a scheduled commercial bank

The Raghuram Rajan Committee had envisaged these local area banks as private, well-governed, deposit-taking small-finance banks. They were to have higher capital adequacy norms, a strict prohibition on related party transactions, and lower concentration norms to offset chances of higher risk from being geographically constrained. Six entities were given licenses to operate LABs by RBI but only four are functioning. Of these four banks, Capital Local Area Bank for more than 70 per cent of total assets of all four LABs taken together as on 31st March, 2012.