REGIONAL RURAL BANKS AND LOCAL AREA BANK

Regional Rural Banks (RRBs) were established with the aim of providing credit and other banking facilities to the rural areas, particularly to the small and marginal farmers, agricultural laborers, artisans, and small entrepreneurs. They were created to bridge the gap between urban and rural credit structures and to ensure the financial inclusion of rural populations.

Key Features of Regional Rural Banks

1. Establishment:
   • RRBs were established under the RRB Act of 1976.
   • The first RRB, Prathama Bank, was set up on October 2, 1975.
2. Ownership:
   • RRBs are jointly owned by the Government of India, the respective state government, and a sponsoring public sector bank. The ownership structure is typically in the ratio of 50:15:35, respectively.
3. Objective:
   • The primary objective of RRBs is to provide credit and other banking services to the rural population to develop the rural economy.
4. Area of Operation:
   • RRBs operate at the regional level in different states of India, and each RRB is limited to specific regions.
5. Products and Services:
   • RRBs offer a range of banking services, including savings and current accounts, fixed deposits, recurring deposits, agricultural loans, micro and small enterprise loans, housing loans, and educational loans.
6. Priority Sector Lending:
   • A significant portion of RRBs’ lending is directed towards priority sectors such as agriculture, small enterprises, and rural development activities.

Examples of Regional Rural Banks

1. Prathama Bank:
   • Sponsoring Bank: Punjab National Bank (PNB)
   • Region: Western Uttar Pradesh
   • Key Focus: Providing credit and other banking facilities to the rural areas in its region.
2. Baroda UP Gramin Bank:
   • Sponsoring Bank: Bank of Baroda
   • Region: Eastern Uttar Pradesh
   • Key Focus: Supporting agricultural and rural development through credit and other financial services.
3. Karnataka Vikas Grameena Bank:
   • Sponsoring Bank: Syndicate Bank (now Canara Bank)
   • Region: Karnataka
   • Key Focus: Providing credit to small and marginal farmers, agricultural laborers, artisans, and small entrepreneurs.

Local Area Banks (LABs) in India

Local Area Banks (LABs) were introduced as a part of the banking sector reforms in 1996. The objective of LABs was to mobilize rural savings and provide credit for viable economic activities in local areas. They were designed to bridge the gap in the provision of banking services in rural and semi-urban areas.

Key Features of Local Area Banks

1. Establishment:
   • LABs were established under the guidelines issued by the Reserve Bank of India (RBI) in 1996.
   • They were intended to operate at a local level, providing financial services to a specific geographical area.
2. Ownership:
   • LABs are privately owned and managed by local entrepreneurs, individuals, or corporates.
3. Objective:
   • The primary objective of LABs is to mobilize local savings and provide credit for productive activities within the local area.
4. Area of Operation:
   • LABs are allowed to operate in three contiguous districts.
5. Products and Services:
   • LABs offer a range of banking services, including savings and current accounts, fixed deposits, recurring deposits, and various types of loans tailored to the needs of the local population.
6. Regulatory Framework:
   • LABs are regulated by the RBI and are required to comply with the regulatory norms and guidelines issued by the central bank.

Examples of Local Area Banks

1. Coastal Local Area Bank Ltd.:
   • Region: Andhra Pradesh
   • Key Focus: Providing financial services to the coastal region of Andhra Pradesh, including credit to agriculture, small industries, and other productive activities.
2. Krishna Bhima Samruddhi Local Area Bank Ltd.:
   • Region: Andhra Pradesh, Karnataka, and Telangana
   • Key Focus: Promoting financial inclusion and supporting local economic activities through tailored financial products and services.
3. Subhadra Local Area Bank Ltd.:
   • Region: Maharashtra
   • Key Focus: Catering to the banking needs of the local population, including savings mobilization and credit provision for local enterprises.

Comparative Analysis of RRBs and LABs

Feature	Regional Rural Banks (RRBs)	Local Area Banks (LABs)
Establishment	Under the RRB Act, 1976	Guidelines issued by RBI in 1996
Ownership	Jointly owned by the Government of India, state government, and a sponsoring bank	Privately owned by local entrepreneurs, individuals, or corporates
Objective	Providing credit and banking facilities to rural areas	Mobilizing local savings and providing credit for local economic activities
Area of Operation	Specific regions within a state	Three contiguous districts
Products and Services	Savings accounts, loans for agriculture, MSMEs, housing, education	Savings accounts, fixed deposits, loans for local enterprises
Regulatory Authority	Reserve Bank of India (RBI)	Reserve Bank of India (RBI)
Primary Focus	Rural and agricultural development	Local economic development and financial inclusion

Summary

Regional Rural Banks (RRBs) and Local Area Banks (LABs) both play important roles in the Indian banking sector by providing financial services to underserved and rural areas. RRBs are primarily focused on supporting rural and agricultural development, while LABs aim to promote local economic activities and financial inclusion within specific localities. Both types of banks are crucial for bridging the gap in the provision of banking services in rural and semi-urban areas and for fostering inclusive economic growth.