In a communication to the ministry of finance, the central bank has said that licences have not been issued as the promoters have not complied with some of the terms and conditions of the in-principle approvals.

``These promoters are making efforts to comply with the terms and conditions and are in the process of registering the companies,'' the central bank communication stated.

The RBI had given in-principle approvals to these three promoters in early 1997. Since then, the central bank has not issued any such approval. The central bank had given in-principle approval to Manipal Local Area Bank, Manipal, for the state of Karnataka; Priyadarshini Local Area Bank, Aurangabad, for the state of Maharashtra; and Krishna Bhima Samruddhji Local Area Bank for the states of Karnataka and Andhra Pradesh.

Local area banks(LABs) are expected to help bridge the credit gap between rural and semi-urban areas in the area of operations. This has become necessary in the present circumstances when the existing credit institutional mechanism and agencies have not been able to fully bridge such a credit gap, leaving it to the traditional and unorganised sectors to take care of such needs. LABs have been conceived as an organised source of finance to rural areas in place of the traditional and unorganised sectors.

LABs are not substitutes for regional rural banks (RRBs) and the increased economic activities as a result of these private banks' operations would perhaps help RRBs to indirectly improve their business profile, the RBI stated.

The minimum paid-up capital for a LAB will be Rs 5 crore. Promoters' contribution will be at least Rs 2 crore. Proposals which have diversified shareholdings will be preferred.

Promoters of LABs may comprise individuals, corporate entities, trusts and societies. In the application for bankinglicence, details of the initial contribution of promoters and the manner and method of raising the minimum share capital of Rs 5 crore will need to be indicated.

The area of operation will be maximum of three geographically contiguous districts. Though the banks will be governed by the provisions of the RBI Act 1934, the Banking Regulation Act 1949 and other relevant statutes in regard to liquidity requirements and interest rates will be governed by the provisions applicable to RRBs.

LABs will be registered as public limited companies under the Companies Act 1956. They will be licensed under the Banking Regulation Act 1949 and will be eligible for inclusion in the second schedule of the RBI Act 1934.