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LEAD BANK SCHEME

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Lead Bank SchemeStudy Group – Chairman – Dr. D.R.Gadgil

appointed under the National Credit Council – recommended ‘Area Approach’ for unbanked districts.

Report submitted in October 1969Conclusions:Nationalized banks provide 83% of total creditBanking facilities not available to 617 of 2700

towns 5000 villages not covered by commercial banks

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Lead Bank SchemeProf. Gadgil recommended:Banks should provide integrated banking

facilities in unbanked areasAdoption of ‘Area Approach’ –in unbanked

areas- each bank should adopt an areaHelp agriculture and SSI‘District’ identified as the smallest

geographical unit for the scheme

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Lead Bank SchemeNarsimhan Committee appointed by RBISame recommendations Nationalized banks should act as a ‘Lead Bank’Lead Bank should develop a districtLEAD BANK SCHEME:336 Districts to be distributed between

nationalized banks ( 14 + SBI + 7 Sub. Of SBI)Scheme applicable to all districts except the

Metro. Cities of Mumbai Kolkata Chennai and Un.Terr. Of Delhi, Pondicherry & Goa

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FUNCTIONSSurvey resources and development of banking

in the areaSurvey the dependence on money lenders by

industrial units, farms etcSurvey the facilities for storing (fertilizers &

agricultural inputs), marketing, credit facilities for marketing

Offer training to staff for advice to small borrowers & farmers in priority sectors

Assist other agencies and involve co-op banks, RRB’s, SFC’s, KVIB, NABARD

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Banks were allotted Districts on the basis of :1.The capacity of the Bank – popularity of the

bank in the area2.Geographical continuity of the Districts

forming clusters3. If possible each Bank to operate in more

than 1 State4. If possible to have more than 1 Bank in one

StateLead Banks were to first undertake an

impression survey of whole District.Then a detailed survey regarding saving

potential, credit requirement, credit gap or surplus

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Advantages from the SchemeSpread the availability of banking facilities all

over the countryInter link the Commercial and Co-operative

banksMore effective Branch ExpansionBetter relationship between Govt. and BanksIntegration of credit activities of banksBottlenecks in the development of a District can

be located and removedLead Bank Scheme would assist in

implementation of the District Plan

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District Credit Plans (DCP’s)First implemented in 1974DCP –consists of technically & economically viable

schemes which can be taken up for financing It is a plan of bankable schemes in agriculture,

industry and services sectors of the DistrictThe schemes can be taken up by different

financial institutions in the districtImplement the programme in collaboration with

other institutionsMonitor progress & evaluate progress in

achieving targets

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Progress of Lead Bank Scheme By 1974 – 90% of geog areas in Assam, Bihar,

W.Bengal, Orissa, M.P., U.P covered2 Study Groups appoinetd by RBI in Gujurat &

Maharashtra concluded:A)Lead Banks were successful in identifying

potential areas for new branchesB) Formulation & implementation of DCP’s was

slowThey suggested preparation of Annual Action

Plans followed by Annual Credit Plans (ACP’s)By mid nineties the Lead Bank Scheme covered

493 Districts

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Problems – Lead Bank SchemeConfusion regarding the concept of ‘Lead Bank’

especially for opening branches-ambiguous scope & objectives

Co-ordination & Effective Functioning between banks & F.I’s – not just providing finance

Problems in allotment of DistrictsExpertise- knowledge on the district, agriculture,

projects etcProblems in preparation and uniformity of DCP’sOther InfrastructureDid not consider role of co-operatives – imp source

of institutional finance

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Service Area Approach (SAA)1980’s shortcomings of LBS identifiedSAA introduced in 1989Every branch and RRB allotted 15 to 25

districts=Service AreaSurvey of villages, then village-wise credit

plans preparedCredit plan to be monitored by Lead Bank

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Service Area Approach (SAA)

Advantages of SAA:Branch can concentrate on development

of a villageDuplication can be avoidedLending can be organized and plannedEnd- use better controlled

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State Level Bankers’ Committee (SLBC) formed with Steering Committee & Co-ordination Committee for State Level

District Consultative Committee, Review Committee & Standing Committee at District Level

Block Level Bankers’ Committee (BLBCs) formedBLBCs co-ordinate credit institutions and

development agencies, help implementation of credit plans

Today banks have to open 25% of their branches in a year, in unbanked rural areas