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.