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RBI not to give licences for local area banks
Mumbai, Aug 27: Emphasising the need to strengthen existing local area banks (LABs) to place them on a sound footing, the RBI has decided not to issue any new licence for a LAB.
Mumbai, Aug 27: Emphasising the need to strengthen existing local area banks (LABs) to place them on a sound footing, the RBI has decided not to issue any new licence for a LAB.
LABs, with their present capital base of Rs 5 crore, cannot become viable institutions and the existing LABs would be required to reach a net worth of at least Rs 25 crore over five to seven years for attaining viability, the RBI said in a release here .
The apex bank said, as per the recommendations of review group with former finance secretary G Ramachandran as chairman, LABs should maintain a minimum capital adequacy ratio (CAR) of 15%.
The higher CAR norm was proposed because LABs carry an inherently high risk portfolio and do not have derisking possibilities, it said.
A net worth of Rs 25 crore and CAR of 15% would enable LAB to build an asset base of about Rs 150 crore, a level at which their operations would become viable, the RBI said.
Bureau Report
The apex bank said, as per the recommendations of review group with former finance secretary G Ramachandran as chairman, LABs should maintain a minimum capital adequacy ratio (CAR) of 15%.
The higher CAR norm was proposed because LABs carry an inherently high risk portfolio and do not have derisking possibilities, it said.
A net worth of Rs 25 crore and CAR of 15% would enable LAB to build an asset base of about Rs 150 crore, a level at which their operations would become viable, the RBI said.
Bureau Report