Concern over two LABs ops

Mumbai, Nov 29 | Updated: Nov 30 2004, 05:30am hrs
The Reserve Bank of India (RBI) has expressed concern over the sustainability of two of the four surviving local area banks (LABs) operating in the country.

In this regard, it pointed out that the Subhadra LAB (Kolhapur) had suffered a net loss in the very first year of its operation, while the Krishna Bhima Samruddhi LABs (Mehaboobnagar) net profit remained low and virtually stagnant during 2003-04.

The South Gujarat LAB had suffered net losses in consecutive years and witnessed a significant decline in its capital and reserves.

It was merged with Bank of Baroda (BoB) on June 25 2004, which leaves only four LABs in India - the Coastal LAB (Vijayawada), Capital LAB (Phagwara), Subhadra LAB, and Krishna Bhima Samruddhi LAB.

The performance of LABs reveals that smaller banks had a very high credit-deposit (C-D) ratio of over 100% - the Subhadra LAB at 255.5% and the Krishna Bhima Samruddhi at 129.6%. Larger LABs like Capital and Coastal had C-D ratio of 60% and 60.3%, respectively.

As of March-end 2004, the net profit of five LABs (include the net profit of South Gujarat LAB) put together declined to Rs 10 lakh as against Rs 20 lakh as of March-end 2003.

This was primarily due to the quantum increase in the losses of South Gujarat LAB during 2003-04.

While this concern has been addressed by merging the bank with Bank of Baroda, the two existing smaller banks, viz., the Subhadra LAB and the Krishna Bhima Samruddhi LAB, raise concerns about their sustainability, said the RBI.

In 2003-04, the income and expenditure of the five LABs (including the South Gujarat LAB) stood at Rs 19.6 crore (Rs 17.1 crore in 2002-03) and Rs 19.4 crore (Rs 16.9 crore), respectively.