The Reserve Bank of India (RBI) has included Vijayawada-based Coastal Local Area Bank Limited in the Second Schedule of the Reserve Bank of India Act, 1934, granting it scheduled bank status. The inclusion was notified on 28 July 2026, published in the Gazette of India on 11 August 2026 and announced on 4 September 2026. With this, Coastal Bank has become the first Local Area Bank (LAB) in India to become a scheduled commercial bank and the only scheduled bank headquartered in Andhra Pradesh.
What Does Scheduled Bank Status Mean?
A scheduled bank is a bank whose name is entered in the Second Schedule of the Reserve Bank of India Act, 1934. The Act defines a scheduled bank in Section 2(e) as a bank included in that Schedule. A commercial bank is a bank that accepts deposits from the public, gives loans to individuals and businesses, and provides services such as fund transfers, demand drafts and locker facilities. When such a commercial bank is listed in the Second Schedule, it is called a Scheduled Commercial Bank.
The conditions for inclusion are laid down in Section 42(6)(a) of the RBI Act. The bank must have paid-up capital and reserves of at least ₹5 lakh and must satisfy the RBI that its affairs are not run in a way that harms depositors. Scheduled Commercial Banks in India include public sector banks, private sector banks, foreign banks, regional rural banks, scheduled small finance banks, scheduled payments banks and scheduled cooperative banks.
Scheduled status brings two main facilities. The bank becomes eligible to borrow from the RBI at the bank rate and it automatically gets membership of the clearing house. Membership of the clearing house allows cheques and electronic payments to be settled smoothly with other banks. At the same time, the bank must maintain Cash Reserve Ratio (CRR) balances with the RBI. CRR is the share of a bank’s net demand and time liabilities that it must keep with the RBI, and it is a key tool for keeping prices and liquidity stable.
Coastal Local Area Bank: First Local Area Bank With Scheduled Status
Coastal Local Area Bank Limited, based in Vijayawada, Andhra Pradesh, was licensed by the RBI in 1999 and started operations on 27 December 1999. It describes itself as the first Local Area Bank licensed in India. The bank is headed by B. Venu Gopala Reddy as Managing Director and Chief Executive Officer, with A. N. Appaiah as Chairman. Its registered office is at Gayatri Nagar in Vijayawada.
The bank has completed more than 26 years of operation with a focus on local customers in coastal Andhra. As on 31 March 2026, it reported deposits of ₹994.72 crore and advances of ₹910.05 crore. Deposits grew by 16.25 percent over the previous year, while advances grew by 22.88 percent. It posted a net profit of ₹19.30 crore and a net worth of ₹198.08 crore in 2025-26.
Asset quality and capital strength were key to the RBI decision. Its net non-performing assets (NPAs) stood at only 0.21 percent, which means almost all its loans were being repaid on time. Its Capital to Risk Weighted Assets Ratio (CRAR) stood at 24.81 percent, well above the RBI norm of 9 percent. CRAR measures a bank’s capital against the risk in its loans, and a higher ratio shows a stronger cushion to absorb losses.
The bank now operates 57 branches across 12 districts in Andhra Pradesh and Telangana. It has also received RBI approval to enter Vizianagaram, Prakasam and Khammam districts and to open 13 more branches. This matters for Andhra Pradesh because the state had no scheduled bank headquartered within its borders after Andhra Bank merged with Union Bank of India in 2020. Coastal Bank has now become the only scheduled bank with its head office in the state.
Local Area Banks in India: Background and Present Position
Local Area Banks (LABs) are small private banks created to mobilise rural savings and lend within a limited local area. The idea was announced in the Union Budget of 1996-97 by the then Finance Minister, who proposed new private local banks covering two or three contiguous districts. The RBI issued guidelines for setting up LABs on 24 August 1996. The goal was to bridge gaps in credit in rural and semi-urban areas and provide quick, local decision making.
Each LAB was allowed to operate in a maximum of three geographically contiguous districts at the start. Lending was focused on agriculture and allied activities, small scale industries, agro processing, trade and the non-farm sector. LABs are licensed under Section 22 of the Banking Regulation Act, 1949 and are directly regulated by the RBI. Like other domestic banks, they must meet the priority sector lending target of 40 percent of net bank credit, with at least 10 percent of net bank credit going to weaker sections. Their deposits are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), which is a wholly owned subsidiary of the RBI.
Six LABs were licensed, but only a few continued. The most well known LABs were Coastal Local Area Bank in Vijayawada, Capital Local Area Bank in Phagwara in Punjab, Krishna Bhima Samruddhi Local Area Bank and Subhadra Local Area Bank. Capital Local Area Bank, which started on 14 January 2000, later became Capital Small Finance Bank on 24 April 2016. It was the first small finance bank to start operations in India. This route was opened by the RBI in 2014, when it allowed existing LABs, non-banking finance companies and micro finance institutions with a five year track record to convert into Small Finance Banks. At present, only two LABs remain on the RBI list, which are Coastal Local Area Bank and Krishna Bhima Samruddhi LAB. No LAB had been given scheduled status earlier, which makes the Coastal Bank inclusion a first.
What Changes for Coastal Bank After Scheduling
Scheduled status improves trust, liquidity access and business scope. The bank will now get access to RBI liquidity facilities and money market operations, which were not available to it as a non-scheduled bank. This creates a safety net in times of tight liquidity and lowers the cost of emergency funds. It also strengthens the bank’s standing when it deals with governments, local bodies and larger companies, since many such deposits and businesses prefer a scheduled bank.
The bank will also be able to seek refinance from institutions such as the National Bank for Agriculture and Rural Development (NABARD) and the National Housing Bank (NHB). NABARD, established in 1982 and headquartered in Mumbai, refinances agriculture and rural lending, while NHB refinances housing loans. With such refinance, Coastal Bank can offer more competitive farm and housing loans and use subsidy, refinance and credit guarantee schemes to expand lending and launch new products. The management has said this will support technology driven and customer focused growth.
Stronger obligations will also apply. As a scheduled bank, it must maintain CRR with the RBI and submit regular returns in Form A on alternate Fridays. Failure to maintain CRR attracts penal interest. It must also continue to meet Statutory Liquidity Ratio (SLR), priority sector and capital norms under RBI supervision. In short, the bank gains cheaper and wider funding options, but it also accepts closer discipline and reporting to the central bank.
Scheduled Banks Versus Non-Scheduled Banks
The difference between scheduled and non-scheduled banks and between a commercial bank and the central bank is important for clarity. A commercial bank does business with the public by accepting deposits and giving loans. The RBI is the central bank, which issues currency, controls liquidity and supervises all banks. Among commercial banks, the key divide is whether the bank is listed in the Second Schedule.
| Feature | Scheduled Banks | Non-Scheduled Banks |
|---|---|---|
| Legal position | Listed in Second Schedule of RBI Act, 1934 | Not listed in Second Schedule |
| Paid-up capital condition | Must have paid-up capital and reserves of at least ₹5 lakh | Does not meet the capital or RBI conditions for listing |
| Borrowing from RBI | Can borrow from RBI at bank rate | Cannot borrow from RBI for regular liquidity support |
| Clearing house | Automatic membership of clearing house | No automatic membership |
| Reserve duty | Must keep CRR with RBI under Section 42 | CRR is kept with the bank itself under Section 18 of Banking Regulation Act |
| Public confidence | Higher trust due to RBI listing and supervision | Lower trust due to smaller size and limited access to central bank support |
Coastal Bank has moved from the second column to the first. Its deposits were already insured by DICGC, but scheduling adds RBI liquidity access and clearing house membership, which non-scheduled banks do not get.
Key Takeaways
- Coastal Local Area Bank Limited was included in the Second Schedule of the RBI Act, 1934 vide notification dated 28 July 2026, announced on 4 September 2026.
- It is the first Local Area Bank in India to get scheduled bank status and the only scheduled bank headquartered in Andhra Pradesh.
- A scheduled bank must have paid-up capital and reserves of at least ₹5 lakh under Section 42(6)(a) and gets RBI borrowing at bank rate plus clearing house membership.
- Coastal Bank started operations on 27 December 1999 from Vijayawada and reported ₹994.72 crore deposits, ₹910.05 crore advances and 24.81 percent CRAR as on 31 March 2026.
- The LAB scheme was introduced on 24 August 1996 for banks operating in three contiguous districts, while Capital Local Area Bank became Capital Small Finance Bank on 24 April 2016.
