Explanation:

• 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.5 crore. 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.
• The entire initial capital subscribed by the promoters (including their friends and relatives/associates) would carry a lock in period of three years from the date of licensing of the bank. Further, the promoters’ equity to the extent of 40% of the initial paid- up capital was to be locked in at least for two years beyond the aforesaid period of three years subject to review before expiry of five years from the date of licensing of the bank.
• The promoters of a LAB could be individuals, corporate entities and societies. The number of NRI promoters was not to exceed 20% of the total number of promoters.

Source: ForumIAS