Q. Consider the following statements regarding “Local Area Banks (LABs)”:
1. NRI contributions are not permitted in equity of Local Area Banks.
2. A family group can promote equity holding in Local Area Banks up to 40%.
Which of the statements above given is/are correct?
Answer: B
Notes:
In 1996 it was decided to allow the establishment of local banks in the private sector.
- These banks were expected to bridge the gaps in credit availability and enhance the institutional credit framework in the rural and semi-urban areas and provide efficient and competitive financial intermediation services in their area of operation.
- The minimum start-up capital of a LAB was fixed at Rs.5crore.
- The promoters of these banks were required to bring in the entire minimum share capital up-front.
- It was also decided that a family among the promoter group could hold equity not exceeding 40% of the capital.
- The NRI contributions to the equity of the bank were not to exceed 40% of the paid-up capital.
Source: TMH Ramesh Singh
