Lead Bank Scheme

A milestone in the history of banking in India is the nationalization of the 14 major commercial banks in 1969. This process was undertaken with the main objective of involving the banking sector in a big way in the nation building and economic development. To help to achieve this commendable objective, two committees were set up viz., National Credit Council Study Group with D.R. Gadgil as the Chairman and the Committee of Bankers under the chairmanship of Nariman. These   committees   independently   went into   their   terms   of reference  and recommended an ‘area approach’ for involving the banks in   economic development. This paved the way for giving a concrete shape to the Lead Bank Scheme. As nationalization of banks took place to extend and expand the banking services to all the non-banked areas especially the rural areas, the RBI decided to implement its Lead Bank Scheme through the nationalized banks. But this did not discourage the private sector banks from playing their role in economic development. Infact the Lead bank Scheme involved all the nationalized banks, State bank of India and its associates and three private sector banks. Hence, the era of bank-propelled economic development started.

Features of Lead Bank Scheme

The Lead bank scheme has the following features :

  1. All the districts in the country except the Metropolitan area were allotted among the banks selected for this purpose.
  2. Each bank was expected to take all the initiative to develop the district allotted to it. The initiative includes conducting a detailed survey to identify the resources and the potential of the district concerned and then to devise suitable schemes for utilizing these resources.
  3. The identification of non-banked centers is also included in this regard and such centers will be examined thoroughly to determine whether bank should be established in such places or not.
  4. The districts were allotted to the different banks depending upon the size of the bank, the resources with which they operated, the ability to handle additional volume of work, regional orientation of the bank concerned, etc.
  5. The district allotted to a bank should not be considered as the area wherein only the bank concerned alone should initiate or carry out the developmental works. In other words  the lead bank should not become a monopoly in the district allotted, but it should also invite participation from other agencies in the district. In that manner the lead bank will function as a leader of a consortium.
  6. To co-ordinate all the development activities taking place in the allotted district and other potential projects for the district, the lead bank is expected to set up a district level consultative committee of banks and other financial institutions. This committee was vested with the powers to review the performance in various schemes periodically.

Working of the Lead Bank Scheme

Selected lead banks have completed the survey of the district allotted, to each of them. The district consultative committee in each district has also been formed. The lead bank scheme also designed and monitored the branch expansion activities in all the non-banked areas. The lead banks also started co-ordinating the activities of various agencies in the rural areas like co-operative banks, commercial banks, other financial agencies and other development agencies. The lead banks also started identifying the potential of each district and studied critically the existing line of business and other activities. It also could identify the credit gap in each district. Credit gap refers to the difference between the credit needs of the rural areas and the credit supplied by all the agencies. To bridge this credit gap the lead bank took several steps. Firstly, it decided to improve the deposit mobilization in the area concerned. Secondly, the quantum of funds required for the development activities in the district was estimated. Thirdly, the various agencies in the district were approached to participate in the scheme. Fourthly, with the district consultative committee the performance of each scheme would be reviewed periodically and corrective steps if any required, would be taken up. In this manner the lead bank scheme aimed at removing the credit gap in each district.

Advantages of Lead Bank Scheme

The lead bank scheme was expected to generate the following benefits:

  1. The entire country would inherit a sound banking system.
  2. there will be perfect and effective supervision and expansion of the credit facilities.
  3. The various agencies connected with the developmental activities in each district would be able to achieve a high degree of co-ordination and operation.
  4. The available scarce resources in each district would be mobilized and used for the development of the district concerned.
  5. The banks will start playing a significant role in the economic rebuilding and development.
  6. A systematic attempt will be made to identify the credit gaps in each district and appropriate action will be taken to fill up these gaps.
  7. There is absolutely no scope for achieving development in the district at the cost of other district. In other words  the lead bank scheme would also contribute in its own way towards the balanced regional development.

Arguments against Lead Bank Scheme

But the lead bank scheme failed in certain respects encouraging the critics of this scheme to argue against this scheme on the following grounds:

  1. While it is true that lead bank would take up the role of initiating-the development in the district allotted, but it cannot assume the role of the Planning commission.
  2. A lot of confusion prevailed among the lead banks regarding their exact function and objectives. However this confusion was removed later on when the lead banks started sharing their survey findings with other interested agencies in the district and also started opening branches themselves in the areas identified by them.
  3. Critics also pointed out that a financial and commercial institution like bank cannot be best suited to analyse and solve the task of techno-economic work. Further the banks can be taken as professional institutions in the field of finance and not in the area of development. It was pointed out that banking function is completely different from the development function. In the absence of trained and skilled staff the lead banks could not accomplish the objectives for which they were created.
  4. There were several other practical difficulties in executing this scheme. For instance, the allotment of districts to the banks was not done strictly, on the basis of regional orientation of the banks. As a result the banks could not effectively attend to the initial spade work in the district allotted to them. Operational difficulties like language barrier, difficulty in controlling the work from long distance, difficulty in finding staff for the newly opened rural branches, reluctance of the staff to move to rural areas, absence of trained and skilled people, etc., together raised serious doubts about the success of this Scheme.
  5. A major criticism of the scheme was that the authors of this scheme thought that once the banks are established in the rural or non-banked areas, the other problems in those areas would automatically be solved. Development of any region or area depends on the availability of infrastructural facilities, in that area. Hence, without the other facilities basically required for developmental efforts, banks alone cannot transform the area or region.

Considering these problems of the lead bank schemes, steps have been taken to improve the scheme. For instance, the Banking commission itself has recommended the regrouping of the banking system so as to make; the allocation of districts more meaningful and purposeful. A detailed training programme was charted to be implemented by every bank among the existing and the newly recruited staff. The detailed requirement of each region including finance, was assessed so as to make the appropriate agencies to come up with necessary assistance to the bank to implement the scheme. Another effort taken up was-to arrange for multi-level discussion among the participating banks the scheme so as to share the available information and other details of the scheme to find out solutions for various problems. A close co-ordination and cordial relationship was maintained with the state government concerned to strengthen the scheme.

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