Small banks: lessons from local area banks

Abstract

The Reserve Bank of India (RBI) has released draft guidelines for establishing “small banks". While these guidelines make a reference to Local Area Banks (LABs), they do not draw specific learnings from them.

There are four LABs in the country. They have been performing satisfactorily on most banking parameters, and have achieved deeper penetration without posing systemic risk. Two LABs failed in their early days but that instance was handled effectively.

RBI would greatly benefit by reviewing its handling of LABs. Three major aspects need attention: ownership, capital and stability; systemic issues and concentration risks; operational issues of business model, freedom and autonomy. Read more at: https://www.livemint.com/Opinion/v4higxQgKD3c5kDIQ03sMK/Small-banks-lessons-from-local-area-banks.html