Reserve Bank of India
Rural Planning and Credit Department
1. Is it necessary to register the company with the Registrar of Companies(ROC) before applying for setting up a local area bank(LAB)? If not., what should be indicated against the relevant item of the LAB application?
No, it is not necessary to register the company with the ROC before applying for LAB. The promoters are required to approach the ROC only after 'in-principle' approval is given by RBI for setting up the LAB. The promoters should indicate 'Not applicable at this stage' against the relevant item of the application. If the promoters have selected a name of the LAB, the proposed name may be indicated e.g. 'XYZ Local Area Bank Ltd.(proposed)'
2. Is it mandatory to indicate the names and bio-data of the directors and the CEO of the LAB at the time of submission of application? If not, what should be indicated against respective item of the LAB application?
No, it is not mandatory to furnish. The composition of the Board of Directors of the proposed LAB and the name and bio-data of the proposed Managing Director shall have to be submitted to RBI for approval after the LAB is given 'in-principle' approval. It may be indicated in the application against the relevant item as follows ' Will be submitted at appropriate time for RBI approval'
3. Is it necessary to furnish the information against the remaining items of the application?
Yes, necessary information shall have to be furnished against each item of the application failing which the application will not be entertained.
4. What are the other documents and information required to submitted along with the application?
The information and documents called for in the Annexure to the application are required to be submitted along with the application.
5. Is there any prescribed format of the Project Report ? How many copies of the Project Report and application should be submitted?
There is no prescribed format of the Project report. However, the Project Report should contain essential information about the LAB proposal such as profile of the districts chosen as area of operation, credit gap assessment in respect of each district, existing banking facilities available, business potential of the districts, business plan and business projections of the proposed bank for at least five years together with projected balance sheet and P/L account for five years, various assumptions made in respect of business projections, viability study report etc.
The promoters should submit to RBI application in duplicate together with two sets each of the Annexure to the application and Project Report .
6. Can the area of operation of the LAB comprise three districts in more than one State.
There is no prohibition in this regard. But the three districts selected for the LAB must be geographically contiguous.
7. Whether all districts are allowed as area of operation?
Backward and less developed districts are considered for area of operation of LABs. Districts in which State capital , metropolitan cities or highly industrially developed cities are situated are generally not considered as area of operation of a LAB.
8. Can the promoters bring in Rs.2 crore (40% of the minimum paid up capital) towards initial capital and the balance of Rs.3 crore through public issue before starting the LAB?
No. The promoters have to bring in the entire minimum capital of Rs.5 crore upfront out of their verifiable own sources of funds. This is a mandatory requirement. The promoters have to submit their latest net worth statements duly verified / certified by a Chartered Accountant.The promoters are required to submit documentary evidence along with Auditor’s certificate in support of having mobilized the minimum initial capital of Rs.5 crore before issue of licence to the LAB.
9. Can a single family contribute the entire initial capital of Rs.5 crore or major part of the capital ?
The contribution towards capital of a LAB by a single family should not exceed 40% of the total paid up capital of the LAB. Proposals having diversified share holdings are preferred.
10. Can the promoters transfer their equity shares at any time?
The entire promoters’ contribution towards equity (including the contribution of friends and relatives) shall carry a 'lock-in' period of three years from the date of issue of licence and at least 40% will be locked in for a further period of two years beyond the aforesaid period of three years subject to review before completion of five years.
11. Are LABs allowed to open branches in urban areas ?
The LABs are allowed to open branches in rural and semi-urban areas of their area of operation. However, one urban branch (centre with population above one lakh) in each district will be allowed.
12 Whether any guideline has been issued by RBI for setting up of LABs?
Yes. The Press Release dated 24th August 1996 issued by RBI contains the guidelines.