Q. Which of the following is not a correct statement about the Local Area Banks?
Answer: They are eligible to borrow funds from RBI but can not accept public deposits
Notes: Local Area Banks were set up with the twin objectives of providing an institutional mechanism for promoting rural and semi urban savings and for providing credit for viable economic activities in the local areas. They were established as public limited companies in the private sector. They are promoted either by individuals , corporate, trusts or societies. The minimum paid up capital of such banks was Rs. 5 crores. The promoter’s contribution should be at least Rs. 2 crores. Local area banks can operate and open their branches in a maximum of three geographically contiguous districts. They are governed by the provisions of Reserve Bank of India act 1934, Banking Regulation act 1949 and other relevant statutes. They are to be registered as public limited companies under the Indian companies act 1956. Since they are non scheduled banks, they cannot borrow funds from Reserve Bank of India like other scheduled commercial banks.