In some cases, the Regional banks set up by the governments are not being run profit­ably for various reasons. Secondly, these banks are not meeting fully the credit require­ments of regional borrowers.

With a view to bring about a competitive environment and to overcome the deficiencies of Regional banks, Government has permitted establishment of a new type of regional banks in rural and semi-urban centres under private sector known as ‘Local Area Banks’.

These banks require a low Capital base of Rs. 5 crore only. The entire share capital has to be mobilized from private sector. They will be permitted to operate only within a region of 2 or 3 districts. Local Area Banks are yet to become operational in India as of June 1999.