CHAPTER - II

A NOTE ON LEAD BANK SCHEME

 CHAPTER TT

A NOTE ON LEAP BANK SCHEME

1. Introduction

2. Objectives of the Lead Bank Scheme

3. Functions of the Lead Bank

4. Administration of the scheme

5. Forums of co-ordination

6. Credit Plan

7. Implementation of the Lead Bank Schemes

8. Progress of the Lead Bank Schemes

9. Role of Non-Lead Banks

10. Banking Commissions Review

11. Summary
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2.1 INTRODUCTION

"Our banks must adopt a new attitude be-friending the poor and taking the benefits

of progress to the rural areas and become agents of change and development".

-Smt.Indira Gandhi1.

It is to be emphasised that the complex economic conditions prevailing in rural

India, the commercial banks or Regional rural banks should not remain content with the

traditional role of lender alone. They will have to carry on their activities in the wider

content as the friend, philosopher and guide of rural industrial unit2. In keeping with the

above view, the Government of India and the Reserve Bank of India have been formulating

various schemes to bring commercial banks closer to rural India, one of such schemes

introduced in December, 1969 was the Lead Bank Scheme, which heralded the "area

approach" to banking. This scheme, introduced at the district level, provides for the

co-ordination of the activities of all the commercial and Co-operative Banks and other

financial institutions operating in the district by one Bank, which is designated as the Lead

Bank of that district. All the districts in the country have been allocated to such Lead Banks.

The National Credit-Council constituted a study group in October 1968 to

recommend an appropriate organisational frame work, for implementing the schemes

which help in achieving the social objectives set before the country. The study group

headed by Prof.G.R.Gadgil, then Deputy Chairman of the Planning Commission.

/

Suggested an area approach for banking development. It recommended that each

commercial Bank be allocated districts, so as to take a leading role in its respective district

as regards banking development. The study group felt that this step would help in

extending institutional credit on easy terms to the hitherto neglected sectors, weaker

sections of the society and backward areas. After the nationalisation of 14 Major

Commercial Banks, the Reserve Bank of India appointed a Committee of Bankers, headed
 25

by F.K.F. Nariman, to evolve a co-ordinated programme for providing banking facilities to

the under banked districts of the country. The committee, in its report submitted to the Re­

serve Bank in November 15,1969, recommended the setting up of 'Lead Banks' in each

district. The Nariman committee recommended that Banks should be allocated specific

districts, where they would take the lead in surveying the potential of banking

development, in extending branch expansion and extending credit facilities.

The recommendations of the Nariman Committee was discussed at the Meeting of

the standing Committee of Bankers in December, 1969. The principle of the 'Lead Bank'

was accepted at the Meeting. Thus, the Reserve Bank of India, after careful consideration

of the recommendations of the Gadgil study group and Nariman Committee, gave final

shape to the Lead Bank Scheme towards the end of 1969.

2.2. OBJECTIVES OF THE LEAD BANK SCHEME

Under the scheme, Lead Banks shared the responsibility of surveying and

developing the banking potential of all the districts. Lead Banks were expected to assume

the role of catalytic agents of economic development in their respected lead districts. They

were expected to serve as leaders to bring about a co-ordination of co-operative banks,

commercial banks and other financial institutions in their respective districts in the interest

of district development. This is a very vital role in which the banks are required to associate

and align their operations with planned regional development. On the basis of the survey,

the lead banks were expected to estimate the deposit potential and fill the credit gaps to

improve bank advances in rural areas, especially to priority sectors and weaker sections.

The close involvement of the Lead Bank with a particular area will not only result in

deposit mobilisation but also in the expansion of finance to agriculture and small industries.

The following important benefits were expected to flow from the scheme.
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(i) The whole country would be served by a well-knit system of commercial and co­

operative banking.

(ii) Branch expansion, supervision and guidance would become effective.

(iii) A dynamic relationship between commercial banks, co-operative credit institutions

and government authorities at the district level would evolve.

(iv) Major constraints impeding the development of the districts economy would be identified

and the Lead Bank would induce the appropriate agencies to remedial action3.

2.3. FUNCTIONS OF THE LEAD BANK

In order to achieve the above-mentioned objectives, the Reserve Bank of India spelt

out the following functions to be performed by the Lead Bank4.

To survey the resources and potential for banking development in its district.

To survey the number of industrial and commercial units, farms and other

establishments which do not have bank accounts, or which depend primarily on

money lenders, increasing the resources of such units by additional production

through help from the banking system.

To examine the facilities for marketing of agricultural produce and industrial production,

storage and warehousing and the linking of credit with marketing in the district.

To study the facilities for stocking of fertilisers and other agricultural inputs and

repairing and servicing of equipments.

To recruit and train staff for offering advice to small borrowers and farmers in the

priority sectors and for the follow-up and inspection of the end use of loans.

To assist other primary lending agencies.

To maintain contact and liaison with Government and Quasi-government agencies.

It is not difficult to discern that objectives of the Lead Bank Scheme coincide with

those of nationalisation of Banks. In fact, it is not far-fetched to state that the scheme was
expected to be the Main Vehicle for achieving the objectives of bank nationalisation5.
 27

Thus the responsibility for the overall development of the district has been entrusted to the

lead banks. In otherwords, the role of the lead bank is three dimensional6.

(i) a commercial credit institution for mobilising resources and advancing loans.

(ii) a planning agency, for finding out the needs and problems and solving them by

setting up targets.

(iii) a development bank, for working as a catalytic agent for the development of

backward and the under and undeveloped areas of the districts.

The Lead Bank will be expected to assume the major role in the development of

banking and credit in the allocated districts. At the same time, there is clearly no intention

that the Lead Bank should have a monopoly of banking business in a district. The bank

assigned the lead role, is thus expected to act as the consortium lead and after identifying,

through survey, areas requiring branch expansion and areas suffering from credit gap. It

should invoke the co-operation of other banks operating in the district, for opening

branches as well as for meeting credit needs7. Hence, from the above view expressed by the

study group appointed by Reserve Bank of India to report on the working of the lead bank

scheme in Gujarat and Maharashtra, it is quite clear that the Lead bank is not expected to

play a dominant role as far as banking business in the district is concerned.

2.4. ADMINISTRATION OF THE SCHEME

(B Allocation of Districts

All the districts of the country have been allocated to the banks (public sector and to

a few private sector) except the undemoted districts to assume lead responsibility. The

Bank which has been assigned the lead responsibility is called Lead Bank of the district and

such district for the Lead Bank shall be termed as lead district. The distribution of district

was mainly done on the basis of certain criteria like size and resources of bank,

geographical contiguity, ability to undertake lead responsibilities, with re-organisation of

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the districts and nationalisation of six more banks in 1980, the Lead bank responsibilities

were readjusted from time to time. Allocation has been made in such a way that in each

state there would be more than one Lead Bank and to the extent possible, for each bank to

operate in more than one state8.

firiOrganizational Setup

Lead Bank Scheme involves the participation of Lead bank, other commercial

banks (Non lead banks) Regional Rural Banks, Co-operative banks, other financial

institutions like state financial corporation, Khadi and village industry board, Reserve Bank

of India. NABARD and developmental agencies of the Government. The organizational set

up at main institutions which participate in the implementation of Lead Bank Scheme is as

under for the effective implementation of Lead Bank Scheme, the banks which have been

assigned the lead responsibility, posted separate officer incharge who is called as Lead

bank officer. In some of the banks, LBO is designated as Lead district manager.

LEAD BANK OFFICERS - DUTIES. FUNCTIONS AND RESPONSIBILITIES

Lead Bank Officer is expected to perform as the man on the spot for carrying out all

the responsibilities entrusted to the Bank under the Lead bank scheme. He should liaise not

only with other branches of his own bank but also with the co-ordinating branches of other

commercial banks and co-operative and land development banks functioning in the district.

He is expected to liaise with Government officials in the districts and blocks as well.While

discharging his duties, the Lead bank officer should take into account the spirit of the Lead

Ban Scheme which envisages integration of the activities of different agencies engaged in

the developmental task of the district viz., commercial banks, co-operative banks, land

development banks, Governmental and Semi-Governmental agencies, etc.

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HIS MAJOR FUNCTIONS. DUTIES AND RESPONSIBILITIES

(a) To convene meetings of DCC, DLRC, standing committee, non-lead bank and special

DCC, etc, as per schedule or requirements. He will prepare background material and

compilation of data required for the meetings. To all the members of the house, the

agenda along with background papers and compiled data and notice of the meeting

should be sent sufficiently in advance, say 15 days. He will record the minutes of the

meeting. The proceedings should bring out the discussions and decisions arrived at

clearly. The items not advised before hand but raised in the meeting should be

separately in the proceedings. The agencies responsible for taking further action on the

decisions together with the time schedule for such action should be indicated in the

proceedings. The concerned agencies should provide necessary feedback regarding the

action taken on the decision to DCC. LBO should follow-up issues requiring action by

banks and other financial agencies. It should be ensured by the LBO that the financial

institutions and government departments furnish him beforehand suitable background notes

on the subjects proposed for discussion at DCC.

(b) He will collect the data of district profile development programmes of the district,

additional infrastructural support during the plan period, assess the potential of various

technically feasible and economically viable activities in the district, demand of the

activities, resource position and staff availability with the banks to prepare credit plans

and furnishing various annexures in the credit plan document. He will also place in

DCC, the details of technical feasibility and economic viability of new activities to be

introduced in the district.

(c) He is the Kingpin in the process of DCP and AAP formulation. He is expected to

complete the task with help of sub-group of the DCC and involvement of the

Government departments and financial institutions in the district.

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(d) He will effectively monitor the implementation of credit plan in the schedules

prescribed by the Reserve Bank of India on a quarterly basis for this purpose, he will be

required to collect data not only from the branches of his bank but also from the district

co-ordinators of other financial institutions/banks. This data will be aggregated and

placed in DCC meetings. One copy of aggregated data will be sent to his controlling

office, SLBC and Regional Office RBI within the prescribed schedule.

(e) He will keep close contact with the district authorities and other government and semi-

govemment agencies with the prime function of co-ordinating the banks developmental

functions in line with the district development plans drawn up by the district

authorities. In general, he will be conscious of his responsibilities and endeavour to see

that lead district credit plans are implemented by all banks, and assistance of

development agencies may be sought for wherever it is necessary.

(f) The Lead Bank Officer will supervise the day-to-day implementation of the district

credit plan and generally keep in touch with other participating agencies to ensure that

the annual component of the district plan is scrupulously implemented. He will also act

effectively to ensure that problems, if any, in the implementation of the credit plan are

resolved by tapping up the matter with the concerned government or other agencies

first at district level. If not resolved at district level then at the State level/Regional

level/Divisional/Regional Manager to keep informed about his activities.

(g) Periodically the credit plans will have to be revised and up-dated. This task will be

borne by the Lead Bank Officer who for this purpose, constantly keeps watch on all the

new schemes which are being drawn up by different agencies, as well as new directives

of the Reserve Bank of India and Government of India.

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(h) The Reserve Bank of India expects that the Lead Bank will conduct evaluation studies

from time to time on the progress in implementation of credit plan. The Lead Bank

officers should take up this work periodically and submit his report to head office, who

would finalise it before submitting to the Reserve bank of India and Ministry of

Finance, Government of India.

(i) LBO should work with close rapport and have frequent consultations with the focal

point officer of the state government.

(j) With the introduction of service area approach, consolidation of plans and monitoring

system shall be done through computer agency. LBO shall have to adjust the system in

such a way that overlappings are eradicated.

2.5. FORUMS OF CO-ORDINATION

Lead Bank Scheme was evolved as a frame work to be more proposive to the needs

of the rural economy. The objectives of the scheme cannot be achieved unless "rural

lending is properly tied to well-designed programmes of developments. This calls for

effective co-operation and co-ordination not only between credit institutions but also

between the credit institutions on the one hand and the government concerned and other

development agencies on the other". Appropriate forums had to be created where these two

agencies can meet periodically to discuss.

Initially forums were set up at the District and state level for the implementation of

schemes evolved by both Government and the banks

(i) At the State Level

State Level Consultative Committee (SLCQ

This is the highest body at the state level to discuss the implementation of the

Government Schemes, which are to be implemented by banks. The Chief Minister is the
 32

Chairman of the State Level Consultative Committee. The Cabinet Ministers, the Chief

Secretary, all the Departmental Secretaries and Managers of Major Banks are represented

in this committee. The committee meets according to convenience.

State Level Bankers Committees

There are matters which require policy decision at the State Level. Such matters

cannot be sorted out at Lead District Level. The State Level Co-ordination Committee is a

joint forum of State Level Commercial Bank representatives and State Government

Officials. There are many problems like provision of infrastructure, development involving

budget allocations, issues requiring inter-bank co-ordination, allocation of schemes at

district level, uniformity of terms and conditions of credit under specific schemes which

can be discussed and solutions arrived at only at state level. Allocation of more staff at

district level can be sorted out only at State Level since district level officials may lack

necessary authority. In the case of banks also certain problems can be solved only at

higher level. The problems communicated to higher authorities can be raised at State Level

Consultative Committee. The convenor of the state level co-ordination committee is the

Lead Bank for the state and the members are the Lead Officers of all districts and State

Level Government Officials. The meeting is convened once in three months. They discuss

a number of problems and arrive at solutions9.

State Level Review Meeting

The achievements of each bank under the Annual Action Plans are discussed and

reviewed at this meeting. The State Level Review Meeting is held once a year.

Representatives of all the banks in the state participate in this meeting. Since on-the-spot

decisions are often made at such meetings, the banks are represented by top ranking

officials who have powers to make such decisions. Government officials from departments

such as Rural Development and Industries attend this meeting.

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(ii) At the District Level

District Consultative Committee (DCO

The DCC has been constituted at the instance of Banking Commission (1972) and

is a common forum for bankers as well as government officials to find solution to the

problems in implementing schemes under Lead Bank Scheme. The DCC came into exist­

ence more or less voluntarily because of the need felt for consultation the matter of district

development schemes. Over the years, it has evolved as an integral part of the LBS.

Composition of District Consultative Committee

Chairman Dist. Collector/D. Y. Commi ssioner

Convenor Lead Bank Officer

Members Chief Executive Officer

District Planning Officer
Project Director, DRCA
General Manager, DIC
Executive Officers, State SC/BC corporations
District level functionaries of Agriculture,
Animal Husbandary, Sericulture.

Fisheries and Irrigation Veterinary Department etc., Lead District Officer, RBI,

Representative of NABARD Regional Managers/District Co-ordinators of 5/6. Commercial

banks having a Large Commitment under credit plan, Priority sector lending and branch

network.

Representatives of RRB District representatives of state financial corporation, EDC,

KVIC & KVIB. Representatives of Dist. Central Co-operative Banks and other co­

operative banks having a large commitments under credit plans.

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Other Government Departments, Corporations, Boards, Universities and banks,

which are not permanent members, may be invited to specific meetings, whenever

considered necessary, on the basis of agenda hems. Each member should be represented

only by an official of an appropriate level at DCC meeting.

The overall strength of DCC should be maintained at a compact level of 20625

members. So that the discussions at this forum are meaningful and result-oriented.

FUNCTIONING OF DISTRICT CONSULTATIVE COMMITTEE

District consultative committee is a forum where the common problems faced by

the different agencies such as inadequacy of infra-structural facilities and extension

services as well as non-availability of credit facilities are taken up for discussion. Branch

expansion at district level, banking statistics, review of the implementation of the credit

plan, review of the assistance to priority sectors under various schemes, review of the

proposals forwarded by District-Industries Centre etc., are the regular items in the agenda.

Based upon the requirements of each District and the schemes in force, additional items are

included. One of the important functions of the District consultative committee is to arrive

at uniform terms and conditions for similar schemes and types of advance. The District

consultative committee resolves the difficulties encountered in the implementation of the

District Credit Plan and discusses other matters of common interest for overall development of

a district. It has no powers to enforce its decisions. But even voluntary commitment to a goal of

serving the people must be accepted as morally binding. The whole process is democratic and

participative wherein persuasion, consciousness of work for common goal and appreciation of

each others. Problems are the basic instruments of achieving the desired objectives10.

STANDING COMMITTEE

The District Consultative Committee by virtue of its constitution and functioning is

not in a position to exercise supervision over the Lead Bank Scheme. Therefore a Standing

Committee of the District Consultative Committee has been set up in all districts to deal
 35

with operational problems arising in the implementation of the Lead Bank Scheme.

The Lead Bank Officer is the convener of the standing committee. The standing committee

is free to associate other district officials and financial institutions concerned with its work.

The important functions of the standing committee are identifying the feasibility of

formulating new bankable schemes, assisting in the review of the District credit plans,

looking into the availability of necessary infrastructural facilities and supply of inputs for

the schemes and devising ways and means to ensure proper co-ordination among all the

concerned agencies. In short the standing committee looks into the preparation and

implementation of District credit plants. The standing committee meets once a month. The

reports of the committee are considered at District consultative committee meetings.

2.6 CREDIT PLAN

The Lead Banks conducted impressionistic surveys of their lead Districts and

identified a large number of growth centres where bank branches could be opened. The

process of branch expansion was considerably speeded up. By and large the Lead Bank

Programme was a success, both in terms of the number of new offices opened and in the

emergence of a pattern of collaborative efforts hitherto unknown to commercial banking.

Since its formulation and the gradual change from traditional to development oriented

lending by banks, the scheme has undergone a distinctive transformation and attained

qualitative dimensions. Once a basic infrastructure for banking development was

established with accomplishment of rapid branch expansion, the stage was set for the

second phase of the Lead Bank scheme. It is now concerned with the formulation and

implementation of 'Area Development' Programmes. The Second Phase of the scheme

implemented around 1974-75 marked a crucial stage whereby banks came to tackle the

problems of credit administration at district level.

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NEED FOR CREDIT PLAN

India is the largest democratic country committed to development planning. It is

necessary to have institutions, which can subserve the social and economic objectives of

planning. Since its formulation in December, 1969, the first phase of the scheme was

completed successfully in a period of five years, and the Lead Banks all over the country

embarked upon the formulation and implementation of development programmes.

Therefore, the Lead Bank has to pin-point credit gaps and formulate suitable schemes for

growth. This is possible only in preparing credit plans, to cater to the credit requirements of

the districts in a planned manner in collaboration with other financial institutions at the dis­

trict level. Thus, there is need-based lending in the place of haphazard and scattered

lending. Since the credit plans are bankable schemes for area development in the area of

priority sectors, to the extent possible, the schemes are dovetailed with the plan programers

implemented in the district. The priorities indicated in the district plans are taken into

account in framing schemes under credit plan. The primary task was that of opening as

many branches as possible in the rural areas. This was carried out with the help of other

banks in the district. This task represented the first phase of the operations of the Lead

Bank Scheme". Since the commercial banks were oriented towards industry and trade

originally, the task of rural expansion called for new perspectives and new skills and posed

new challenges.

DISTRICT CREDU^JLANS

Collective action by banks and other financial institutions in the implementation of

bankable schemes indeed the crux of the Lead Bank Scheme. The most important phase of

the Lead Bank Scheme is formulation of District Credit plans and their implementation. It

is a plan for an area consisting of technically feasible and economically viable schemes,

which can be taken up for the consideration of financial institutions. It is a collection of

bankable schemes to be implemented in a given period of time. It covers only the priority
 37

and neglected sectors. It is called 'Priority Sector Plan'. The schemes and programmes of

the government are taken into account, while formulating credit plans. The resources

available and the infra-structural development in the district determine the size and content.

It is the basis for credit operations in the district. It is a plan for development financing.

It is a perspective plan for the district. Thus it is a blue print for action by banks and

other financial institutions. In fact the District credit plan has come to be recognised as

piece de resistance12 of the Lead Bank Scheme.

OBJECTIVES OF THE CREDIT PLAN

As its broad objective, a District Credit Plan envisages to bring about overall

development of the district for which planning is utilised as a tool. Its main objective is to

channel bank credit into sectors that have high growth and employment for accelerating the

process, keeping in view of the overall constraints. As the credit plan is a 'Priority Sector

Plan' the broad objectives are development of agriculture. Small scale industry and other

sectors like road transport, retail trade and small business, professionals and self employed

etc., The main objective of the District Credit Plan in the light of the principal objectives of

the National Plan are13.

1. Loans for Labour intensive schemes which generate employment

2. Loans to increase productivity of land and other altered sectors to reduce

unemployment and increase income levels.

3. Loans to weaker sections of populations. However all the schemes to be financed

through loans must be technically feasible and economically viable. The District

development plan is expected to take care of these basic objectives and clearly

indicate where the banks can step in and meet the demand for loans, for bankable

schemes considered this way the District credit plan is only an amplification of

credit programme included in the overall district development plan. Hence the credit
 38

plan is formulated in line with the development strategy worked out for the

District14. Thus the ultimate basic objective is comprehensive development with

maximum benefit to weaker sections. The District credit plans helped in many

ways15.

They have succeed in channelising credit. They have helped in popularising the

concept of planning at the grass roots level. They emphasise the inter-dependence of credit

institutions and official agencies.

PREPARATION OF CREDIT PLAN

Credit plans for their respective districts are formulated on the basis of assessment

made by them about the potentialities and resources. In this the respective district

development plans serve as the basic frame work. Bankable activities which can be

financed under different schemes are identified and included in the credit plan. No uniform

methodology or approach was prescribed in respect of the formulation of the district credit

plan for nearly a decade. Some guidelines were made available for formulations of

bankable schemes in the Report of the study groups on the working of the Lead Bank

Scheme in Gujarat and Maharashtra in 1975. However the earlier credit plans prepared by the

different Lead Banks were lacking in uniformity of approach content and size. The duration of

credit plans also varied from bank to bank. Therefore the Reserve Bank issued detailed guide­

lines for the preparation of District credit plan 1980-82 and Action Plan for 1980.

The Lead Bank should be as realistic and precise in the preparation of the credit

plan as possible. The starting point for the formulation of the District credit plan is to assess

the capability and role of each of the commercial banks, co-operatives in the district and

arrive at a consensus about the specific nature and magnitude of lending programme they

can undertake. Preparation of the District credit plan involves, (1) Identification of

economic activities which can be financed by credit institutions, (2) Collection of data with
 39

a view to preparing bankable schemes, covering these activities and (3) Estimation of credit

demand likely to arise under each bankable scheme. Therefore to start with banks should

set about the task of formulating individual viable bankable schemes which can be

immediately implemented and completed over the plan period. These schemes should be in

the broad area of the priority sectors - ie., in agriculture, small scale industry and small

business and self employed. It is necessary that the schemes should be based as far as

possible on the existing infra structural facilities available throughout the district. Only then

it will be ready for immediate implementation. To the extent possible the schemes should

be dovetailed with the development programmes implemented in the district.

2.7. IMPLEMENTATION QELEAD BANK SCHEMES

After the review of the working of the Lead Bank Scheme in Gujarat and

Maharastra by the Reserve Bank of India in 1975, the focus under the scheme was on the

preparation and implementation of bankable schemes and credit plans for the Lead

District16. The implementation of the Lead Bank Scheme can be broadly divided into

eleven phases. They are

I. Allocation of districts among various CBs for assuming the role of lead district

responsibility (1969-70).

II. Conducting of impressionistic surveys and identification of growth centres for

branch expansion (1970-73).

III. Constitution of District - consultative committees in all the lead districts (1970-73).

IV. Preparation of credit plans on the basis of credit gaps and potentialities

(early experiments).

V. Review of progress of LBs by a study group in Gujarat and Maharashtra

(December, 1975).

VI. Preparation of first round DCP (1978).

VII. Preparation of second round DCP (1980-82).

 40

VIII. Preparation of third round DCP.

(January 1983 - 31st March, 1985),

IX. Preparation and implementation of Annual Action Plan [(AAP) for 1985,

1986 and 1987].

X. Formulation of fourth round DCD and AAP 1988.

XI. Introduction of Service Area Approach (SAA) (1988-89).

2.8. PROGRESS OF LEAD BANK SCHEMES

The Reserve Bank of India set up two study groups in August, 1975, to review the

working of Lead Bank Scheme in Maharashtra and Gujarat and to formulate appropriate

guidelines for its effective working. The general conclusion of the groups that submitted in

December 1975, a combined report for both the states was that while first phase of the Lead

Bank Scheme of identifying potential centres for bank operations and the opening of bank

branches therein has been a success, the second phase viz., the progress of formulation and

implementation of area development programmes has been slow. The report states that the

emphasis should be on expeditious preparations of technologically feasible and

economically viable schemes and their collective implementation by all financial

institutions. Banks should set about the task of formulation of viable and bankable

schemes, in the broad area of primary sectors.

The report has nevertheless pointed out that the Lead Banks cannot take the

responsibility of drawing up the District Development Plan. Also the task of overall monitoring

of the progress of the scheme would have to be that of the District consultative committee.

The two groups were also requested to examine (a) the constitution and working of

the District Level Consultative Committees (b) the nature and extent of liaison between

financial institutions and State Government and (c) the extent of involvements of banks in

the formulation and implementation of Area Development Programmes.

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The study groups observed that the credit plans evolved by some banks for their

districts varied in methodology and coverage. Though the groups did not favour a uniform

approach in this regard, they were particular on the expeditious preparation of

technologically feasible and economically viable schemes and their collective

implementation by all financial institutions. They recommended that banks should

formulate schemes in the broad area of priority sectors for immediate implementation and

completion within three to five years. The study groups framed certain guidelines for the

more effective operation of the Lead Bank Scheme covering the formulation and

implementation of bankable schemes and the consultation and functioning of the District

consultative committee for the purpose of watching the overall progress of the Lead Bank

Scheme the study group advocated the constitution of a High Power Committee.

RBI HIGH POWER COMMITTEE

Accordingly, the Reserve Bank of India High Power Committee (HPC) constituted

in July 1978 for the purpose of keeping the progress of the Lead Bank Scheme under

constant review and for issuing policy guidelines for its effective implementation con­

sidered the following important issues.

(i) Preparation of the District Credit Plans (DCPs) for 1980-82 and Annual

Action Plans (AAPs) for 1980. The Lead Bank has been advised to formulate new District

Credit Plans for a uniform period of three years January 1980 to December 1982 and also

Annual Action Plans (AAPs) in December each year. So that these plans would

synchronize more or less the eighth five year plan of Government. Detailed guidelines

indicating among others the objectives, contents, approach to estimation of credit outlays

for different purposes, methodology to be followed, identification and fixation of

responsibilities of different items of work necessary for the preparation of the District credit

plans were issued to the Lead Banks in March, 1979.

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The new District Credit Plan (DCP) is to be of a comprehensive nature and is to

indicate credit target for institutional credit agencies in the district on a blockwise,

sectorwise, schemewise and bankwise basis. One of the innovative features of the

preparation of the New District Credit Plans is the introduction of the participative planning

by constitution of a district level task force comprising representatives of the district central

co-operative bank. One or two commercial banks having larger number of branches in the

districts, the district plan official and the district convener of the Lead Bank for the

preparation of the plan. The draft DCPs are to be finalised at the District Consultative

Committee (DCC) meetings after circulation to all agencies concerned.

According to the time bound programme given to the Lead Banks, the entire work

of preparation of the DCPs was to be completed in nine consecutive stages by December,

1979. However, owing to various constraints, for instance, the non-availability of sixth

plan data and district development schemes and the inadequate organisational setup of the

Lead Banks at the district level for the preparation of DCPs, the time schedule could not be

strictly adhered to the HPC, therefore the extended period for preparation of the perspective

DCPs upto March, 1980, but insisted the Annual Action Plans for 1980 should at least be

launched for implementation by the end of January, 1980. So far, DCPs in respect of 357

districts out of 398, have been prepared.

(ii) Appointment of Lead Bank Officers by the Lead Banks in each districts. Since

the absence of a proper setup at the district level was one of the major constraints in the

preparation and implementation of the District credit plans. Lead Banks were advised to

appoint in each of their Lead districts a responsible officer as Lead Bank Officer and attach

to him adequate supporting staff for the preparation and implementation of the DCPs.

(iii) Monitoring the preparation and implementation of District Credit Plans of

Reserve Bank : To ensure effective implementation of the Lead Bank Scheme it was

decided that officers of the Reserve Bank of India would monitor the preparation and
 43

implementation of the District credit plans more closely. The officers entrusted with this

responsibility, designated as Lead District Officers, were allotted 4 to 5 contiguous each,

for intensive monitoring. Development wings were setup at the Regional Offices of DBOD

and the Lead District Officers role which banks are required to play. The Lead District

Officers were to maintain active liaison among all the participating financial institutions

and the government functionaries so as to make the Lead Bank Scheme a success.

(iv) Standing Committee of the District Consultative Committee : As the HPC felt

that the DCC by virtue of its constitution and functioning might not be in a position to

exercise Supervision over the working of the Lead Bank details of procedure, Lead Banks

were advised to constitute standing committee of the DCC which would meet atleast once a

month. The 'Task force' was continued as a standing committee of DCC, the District

co-operation officer and the Lead District Officer from Reserve Bank also being members

of the Standing Committee. Thus those involved in the preparation of the credit plans also

concerned with its implementation.

(v) Reporting by banks to their Boards regarding the fulfillment of the allocated share :

All Commercial banks were advised by the HPC that their head offices should evolve a proce­

dure to oversee whether branches in the various districts were fulfilling the shares allocated to

them in District credit plans and should pursue the matter effectively with such branches as

were found to be lacking in their efforts in this behalf. The banks were also advised to evolve a

procedure of reporting to their Board of directors every half year about their performance

viz-a-viz their share in the credit plans of the various districts in the country.

(vi) New information system under the Lead Bank Scheme : In view of the

difficulties experienced by the banks in the submission of data in the existing three formats

prescribed by the Government of India/Reserve Bank, the information system was

reviewed by the HPC two new formats were introduced for submission every quarter/year

as detailed below.
 44

(a) Quarterly return for monitoring the implementation of the District credit plan,

Commencing from the quarter ended March, 1997.

(b) Annual return for monitoring the performance in the recovery of advances

commencing from the year ending June, 1997.

Further in view of the difficulties experienced in the flow of data. HPD designed

that the data required both at the District/State level would now be consolidated by the

Regional Offices of the Department of Banking operations and Development (DBOD) of

the Reserve Bank17.

2.9. ROLE OF NON-LEAP BANKS

The choice of 'area approach' implies that all the banks and financial institutions in

the district should harness their resources and co-ordinate their efforts so as to stimulate

economic development of the district. It is possible only when both Lead and Non-Lead

banks understand their respective roles in a given district and make sincere efforts to fulfill

their targets accepted after mutual consultation. After all one Lead Bank of a district may

be a non-lead bank in other districts. Therefore, every bank must understand the role of

Lead as well as non-lead banks and play it effectively in order to make the 'area approach1 a

success. The need for co-operation between lead and non-lead banks is further underlined,

by the fact that in many districts the number of branches under non-lead banks are far

greater than the number of branches of a Lead Bank and very often the share of credit of all

non-lead banks for exceeds that of a Lead Bank in a district. The Lead Bank Scheme also

envisages close co-operation between commercial banks and other financial institutions

like co-operative banks. In view of the rural orientation, their wider coverage, the co­

operative institutions are allotted a substantial share of agricultural credit. Hence, non-lead

banks have equal importance in the implementation of the scheme.

 45
2.10. BANKING COMMISSIONS REVIEW

The Banking Commission identified two different views on the role of the Lead

Banks. According to one view, the Lead Banks responsibilities were (i) to conduct the

district survey (ii) to identify places with potential for banking and (iii) to offer the list to

all interested banks for opening branches. The Lead Bank was to open branches only in

those places which were not taken up by any other bank. The other view was that the Lead

Bank was entrusted with the main responsibility to open branches in its Lead districts.

BALDEV SINGH COMMITTEE (APPROVED BY RBIt

This committee was constituted for the following purposes.

1. Simplification of application forms and lending procedures in respect of agricultural

loans and

2. Introduction of uniformity among banks.

Recommendations of the committee were,

(i) Printing of loan applications in regional languages.

(ii) No distinction between loans upto Rs.5000 and loans above Rs.5000.

(iii) Bank to assist borrowers in filling up the application form.

(iv) Bank to obtain ground clearance from Government for the region for minor

irrigation loans.

(v) Cost of photograph of borrower to be met by bank.

(vi) Register of loan application received or disposed to be maintained by bank.

(vii) Relaxation in security norms.

LEAD BANKS - ANNUAL CREDIT PLAN (ACP)

Credit disposal at the district level is done effectively by the lead bank schemes

through their Annual credit plans. A steady increase in the allocation of bank credit and

disposal to the three sectors viz., agriculture, industries and services through their credit

plan is seen year-after-year.

 46

ANNUAL CREDIT PLAN UNDER LEAD BANK SCHEME IN INDIA

During the year 1997-98, the number of districts covered in the country under the

Lead Bank Scheme (LBS) has increased. As on March 31, 1998, 536 districts have been

under the LBS in the country. There were twenty one new districts as a result of re­

organisation of some of the existing districts. Public sector banks were assigned with lead

responsibility of these districts.

2.11. SUMMARY

The above chapter deals with the introduction of the Lead Bank Scheme, objectives

and functions of the Lead Bank Scheme, Allocation of Districts, organisational setup and

forums of co-ordination has been outlined.

From the implementation of schemes evolved by both government and banks

initially forums were set up at the District and state level. Under Lead Bank Scheme

Commercial banks are designated as Lead Banks which have been formulating credit plans

for districts and their component development banks. This chapter has vividly discussed

about the need of credit plan and its objectives and preparation. The eleven phases in the

implementation of the Lead Bank Scheme are also given.

The progress of the Lead Bank Scheme has been analysed since the origin of the

scheme. The need of co-operation between Lead Banks and non Lead Banks is essential to

make the 'area approach' a success. Banking commissions review on the role of Lead Banks

are outlined.

The Lead Bank Scheme contains certain inherent areas of contradictions. However,

it has helped in bringing together financial institutions and Government agencies on a

common platform to co-ordinate their activities according to certain acceptable norms and

programmes. As far as banks were concerned, conducting surveys under the scheme was a

new experience for most of the commercial banks. The exercise gave an opportunity to
 47

banks, to train a cadre of their officials in the collection and interpretation of economic data

to prepare credit schemes relevant to the needs of their Lead districts. The Lead Bank

Scheme has integrated growth of rural banking with development needs of the rural areas.

India is a country, where such a gigantic task of rural development is undertaken, on such a

massive scale in an integrated manner with the help of the banking system and through

collaborative efforts of the Government and financial agencies.

 48

REFERENCES

1. Smt. Indira Gandhi, "Address to the Nation" on the eve of Bank nationalisation.

July, 1969.

2. Sharma, Y.C. Bank Finance for Rural Industries, Commerce (Banking, 1981). July 25,

1981, p.19.

3. The IOB - The house magazine of Indian Overseas Bank V-III Oct. 1983. Madras.

4. Reserve Bank of India. Annual Report. 1970. p.62.

5. Dinker Rao, K. "Towards a Better Understanding of the Lead Bank Scheme" - The

Journal of the Indian Institute of Bankers Vol-52. Nol, January - March, 1981. p.31.

6. Prasad Singh, A.B. The Lead Bank Scheme Capital Publishing House, New Delhi, 1st

Edn., 1987 (Published Ph.D., Thesis), p.4.

7. Reserve Bank of India. "The Lead Bank Scheme - Progress and Perspectives" Reserve

Bank of India, Bulletion November, 1970, p.1917.

8. Reserve Bank of India, "Lead Bank Scheme - Concepts and Problems". Bankers

Training College Bombay, May, 1979, p.6.

9. The following are some of problem areas as to be talked at state level.

1. Introducing system of issue of pass book.

2. Acceptance and implementations.
3. Lack of irrigation facilities.
4. Establishment of market yards
5. Land reforms and legislations affecting the farmers and
lending institutions etc.

10. "Lead Bank Scheme - Concepts and Problems", Op. Cit. p.6.

11. "Lead Bank Scheme - Concepts and Problems", Op. Cit. p.4.

12. Krishnaraj, P., Srikantan,M.S., District credit plans 1980-82, Eastern Economist.

May 9, p.948.
 49

13. 1. Removal of unemployment and under employment.

2. Appreciable rise in the standard of living of the
poorest section of population.
3. Provision of some of basic needs of people belonging to poorer sections.
Planning Commission : The Sixth Five Year Plan, 1980-1985.

14. Reserve Bank of India, "Lead Bank Scheme - District Credit Plans New

Guidelines" March, 1979. p.l.

15. Agricultural credit Governments Due-Economic and Political Weekly, September,

24, 1983.

16. "Report of the study groups on the working of the Lead Bank Scheme in Gujarat

and Maharastra, "Op. Cit. pp. 4-5.

17. Report on Currency on Finance 1995-96. Economic Review - RBI, Bombay.