RBI had "internal hesitation" on supporting LABs: Sebi's Sinha

Sebi Chairman U K Sinha today said Reserve Bank had "internal hesitation" when it came to supporting the idea of Local Area Banks (LABs).
"The Reserve Bank had some internal hesitation about giving a lot of support that LABs did (require)," Sinha said.
The comments by chief of the capital markets regulator were made during a speech at the launch of journalist Tamal Bandyopadhyay's book 'Bandhan: The Making of a Bank' here, in presence of Reserve Bank Deputy Governor S S Mundra.
The privately-run LABs were introduced in 1996 and only 10 of such highly localised and small-sized lenders were operational. They can be called as a prelude to the upcoming Small Finance Banks (SFBs) which are to operate in a similar way.

It can be noted that one of the entities given an in- principle nod to operate as an SFB was the Capital Local Area Bank, which was also the first to get the final approval.
Sinha, however, said he expects the SFBs to be successful, and will address the long-time problems which have been hurting the deepening of finance.

The Sebi Chairman said there should be an analysis as to why the Regional Rural Bank experiment did not have the desired results.
Speaking before Sinha, Mundra claimed it was RBI's decision to stop Peerless, a Kolkata-based NBFC, from accepting deposits in 2006 that led to the mushrooming of the fraudulent Collective Investment Schemes.

"Probably the move by RBI in 2006 to stop Peerless from accepting deposits was one of the reasons that so many unregulated entities, particularly in West Bengal and the north-east, got into the business of collecting unregulated deposits. (This is) may be something for us to think," he said.