Lead Bank Scheme PRESENTED BY : Anupam Ojha

Contents Introduction of the Scheme Lead Bank Scheme Allotment of districts:- - District Consultative Committees (DCCs) - District credit plan (DCP):- - Village adoption scheme (VAS):- - Genesis of Regional Rural Banks: Objectives of Lead Bank Scheme: Why the Scheme became inactive: Usha Thorat Committee: Recommendation of Usha Thorat Committee

Introduction of the Scheme Lead Bank Scheme (LBS) was introduced in 1969, based on the recommendations of the Gadgil Study Group. The basic idea was to have an “area approach” for targeted and focused banking. The banker’s committee, headed by F. S. Nariman , concluded that districts would be the units for area approach and each district could be allotted to a particular bank which will perform the role of a Lead Bank.

Lead Bank Scheme Under the Scheme, each district had been assigned to different banks (public and private) to act as a consortium leader to coordinate the efforts of banks in the district particularly in matters like branch expansion and credit planning. The Lead Bank was to act as a consortium leader for coordinating the efforts of all credit institutions in each of the allotted districts for expansion of branch banking facilities and for meeting the credit needs of the rural economy.

Allotment of districts: All the district s in the country excepting the metropolitan cities of Mumbai , Kolkata, Chennai and Union Territories of Chandigarh, Delhi and Goa were allotted among public sector banks and a few private sector banks. Later on, the Union Territories of Goa, Daman and Diu as also the rural areas of the Union Territories of Delhi and Chandigarh have been brought within the purview of LBS.

Cont…….. District Consultative Committees (DCCs) :-T he next important development in the history of LBS was the constitution of DCCs in all the districts, in the early seventies to facilitate co-ordination of activities of all the Banks and the financial institutions on the one hand and Government departments on the other. The DCCs were constituted in the lead districts during 1971– 73. District credit plan (DCP):- The second and most important phase of the LBS was formulation of DCPs and their implementation. Although certain structural credit gaps were identified earlier, positive measures were introduced only after nationalization of the banks. Certain sectors which were hit hereto neglected were given a priority status and banks were asked to provide credit to these sectors in a more concerted way.

RRBs & Village Adoption Village adoption scheme (VAS):- Under this, bank adopted some villages in their command area for intensive lending. The area approach was not so much aimed at development of a chosen area as for avoiding the pitfalls of scattered and unsupervised lending. In the initial stages of VAS, RBI has encouraged banks to adopt villages as well as to avoid scattered lending. Genesis of Regional Rural Banks: Nationalization of banks was not able to bridge the entire credit gap in the rural areas. A vast majority of the small and marginal farmers and rural artisans remained untouched by the banking system. Therefore, the range of institutional alternatives was widened in 1975 by adding Regional Rural Banks (RRBs) to the banking scene which would exclusively cater to the credit demands of the hit herto neglected segment of the rural economy. Thus, with Co-operatives. Commercial Banks and RRBs, a multi-agency approach was adopted in the rural credit system.

Objectives of Lead Bank Scheme: 1) Eradication of unemployment and under employment 2)Appreciable rise in the standard of living for the poorest of the poor 3) Provision of some of the basic needs of the people who belong to poor sections of the society.

Why the Scheme became inactive: 1)T he Lead bank Scheme which was launched 3 decades ago has not been fully able to achieve its targets due to shift in policies, complexities in operations and issues shifting to the Financial Inclusion. 2) Lack of coordination between district planning authorities and banking institutions operating in a district on one side and between Nabard and the Lead Bank on the other is the prominent reason which required attention. Duplication of efforts in credit plan preparation should be avoided by empowering the plan team at the district level appropriately. 3) Over the period the system of lead bank scheme and associated district -level coordination committees of bankers has apparently become inactive.

Cont……… 4) There was a strong need felt to revitalize the scheme with clear guidelines on respecting the bankers’ commercial judgments even as they fulfill their sectoral targets. 5) Various committees like Block Level Bankers Committee, District Coordination Committee and District Review Committee seldom function with all seriousness. 6) LBS Information System does not have any checks and balances and does not agree with several other returns relating to Priority Sector Credit .

Usha Thorat Committee: 1. The Government of India constituted a High-Power Committee headed by Mrs. Usha Thorat , Deputy Governor of the RBI, to suggest reforms in the LBS. 2. The task of this penal was recommend how to revitalize the LBS , given the challenges facing the banking sector, especially in an era of increasing privatization and autonomy. 3. The committee recommended the enhancing the scope of the scheme and suggests a sharper focus on facilitating financial inclusion rather than a mere review of the government sponsored credit schemes. 4. The committee said that most forums to monitor the implementation of LBS are being used for routine review of the government -sponsored schemes, credit deposit ratio, recovery performance, among others. 5. Lending under such schemes constitute 0.4 percent of the total priority sector lending. As such, the State Level Bankers’ Committee (SLBC) / District Consultative Committee (DCC) could utilize its time to discuss specific issues inhibiting and enabling financial inclusion rather than those concerning government -sponsored schemes.

The following were the recommendation of Usha Thorat Committee: 1)LBS should be continued to accelerate financial inclusion in the unbanked areas of the country. 2) Private sector banks should be given a greater role in LBS action plans, particularly in areas of their presence. 3) Enhance the business correspondent model, making banking services available in all villages having a population of above 2,000, and relaxation in KYC (know your customer) norms for small value accounts. " The review on LBS has been made with a focus on financial inclusion and in view of the recent developments in the banking sector. The scheme has been found useful to promote financial inclusion in the country. Hence it should be continued" - Usha Thorat May 22, 2009

Some More Points & Issues: 1)There is a strong need to revamp and revitalize the Lead Bank Scheme so as to make it an effective instrument for bringing about meaningful co-ordination among banks operating in a district . 2)This can bring about greater participation among banks and financial institutions in achieving full financial inclusion. 3) The Operation problems are the major hurdles of the Lead bank Scheme. Obviously , financial inclusion calls f or united action on the part of all banks and financial institutions operating in a district . 4) An approach on the lines of area approach can be adopted and in each area or location a particular bank can be given responsibility for achieving meaningful financial inclusion.

Continued……. 5) Full computerization and data management in all banks must be in order and the banks involved should be able to periodically prepare and review reports, yearly draft plans, and financial inclusion plans, from time to time. 6) There is a need for revamping the District -level Consultative Committees (DLCC) and it should be a result oriented rather than a titular organization. 7) Lead bank Scheme should be an effective instrument in bringing about full and active involvement of all member banks in all efforts and schemes.

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