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RBI panel says no to new LAB licences

A Reserve Bank of India appointed review committee on Local Area Bank scheme has recommended that no new licences should be given till the existing ones are placed on a sound footing.

The committee, headed by former finance secretary G Ramachandran, in its report said since some LABs have only recently started functioning more time was needed to be given to observe their performance.

Suggesting that LABs should be treated on par with cooperative banks in the matter of opening of branches, the panel felt that other restrictions should be waived and the branch opening should be subject only to the granting of a licence by the Reserve Bank of India.

LABs need to be treated like any other commercial bank and hence regulation and supervision should be entrusted to the same wing of RBI, which is responsible for commercial banks, the apex body said in a release in Mumbai on Saturday.

To make a LAB viable, the panel felt they should have a net worth of Rs 25 crore (Rs 250 million) and capital adequacy norm of 15 per cent to build an asset base of about Rs 150 crore (Rs 1.5 billion) at which their operations would become viable.

Each of the existing LABs should be asked to submit a suitable road map for achieving these twin objectives, it said.

Considering the risks involved, LABs should be prohibited from trading in government securities and other papers for five years and also not be permitted to engage the services of agents for achieving their business outreach, it added.

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