Banking Awareness : Lead Bank Scheme

Banking Awareness : Lead Bank Scheme


After the Nationalization of commercial banks, government took the initiative for extending banking facilities in rural areas. Prof D. R. Gadgil, chairman of National Credit Study Group, recommended the adaptation of an "area approach" to evolve plans and programs for the development of an adequate  banking and credit structure in rural areas. As a sequel to this "area approach", recommended by pof Gadgil study group, the Lead Bank Scheme was introduced in December 1969. Under this scheme, a particular district is allotted to every nationalized commercial bank. The allotment of districts to the various banks was based on such criteria as the size of the banks, the adequacy of their resources for handling the volume of work. The lead banks initially conduct basic surveys in their respective lead districts and prepare district credit plans designed for the purpose of estimating credit needs of the concerned district so that physical and manpower resources available may be utilized properly. The district credit plans are linked with the development programs and are based on integrated development of the concerned district with special emphasis on the development of rural and backward areas. Since the introduction of lead bank scheme notable progress has been achieved by commercial banks in respect of branch expansion, deposit mobilization and credit deployment. Undoubtedly, the scheme is major step towards banks fulfilling their new social objectives and holds promise for making banks as effective instrument for bringing about economic development of the allotted districts.


Objective of Lead Bank Scheme 
Under this scheme, lead banks were expected to act as leaders to bring about a coordination of cooperative banks, commercial banks and other financial institutions in their respective lead districts. The main objectives of lead bank are as follows :

1. To identify places suitable for branch expansion.
2. To mobilize the savings of the people in the district.
3. To identify the potential areas for agricultural and small industry development. 
4. To identify the major bottlenecks in the appropriate agencies to take remedial action.
5. To estimate the current requirements of credit.

Functions of Lead Bank Scheme

• The following are some of the major functions of a lead bank :
• To survey the resources and potential for banking development by identifying unbanked centers in the allotted districts. 
• To identify the industrial and commercial units which do not have bank accounts or depend mainly on money lender. 
• To setup branches in a phased manner.
• To recruit and train banking staff for counseling the small borrowers and farmers in the priority sectors and also inspection of the end-use of bank credit.
• To identify and study local problems.
• To evolve an integrated credit plan by examining the marketing facilities for agricultural produce and industrial output. 
• To keep contacts and liaison regularly with Govt. and semi Govt. agencies. 
• To provide assistance to the primary lending agencies.

Impact of Lead Bank Scheme

The following important advantages were expected to flow from the scheme.

1. The entire country is supervised under lead bank scheme and steps are taken to revamp credit management and improving the quality of loan asset. 
2. The commercial banks and cooperative banks' expansion supervision and guidance have become effective. 
3. A dynamic relationship between commercial banks cooperative banks and Govt. authorities at the district level is evolved. 
4. There have been quarterly reviews of the progress of the action plans with a view to help the bank management's as well as the Reserve Bank to asses the performance of banks. 
5. Several problems in the development of the district would be identified and the lead bank would induce the appropriate agencies to take remedial action. 
6. There will be enforcing operational and monitoring mechanisms to check over dues so as to reduce the NPA. 
7. The lead bank action plans have been helpful in improving in house keeping, customer services and also profitability of bank.

Working of Lead Bank Scheme 

The lead banks had carried out surveys in virtually all the 338 districts of the country by June 1974. As at the end of June 1978, banks has prepared district credit plans in respect of 380 districts of which 363 plans has been launched. The guidelines for the preparation of fourth round of District Credit Plan (DCP) as approved by the High Power Committee on Lead Bank Scheme in March 1987 were issued. On this base the lead banks prepare and implement the annual action plans (AAPs) in all districts of the country. The lead banks have also been given the responsibility to obtain complete details of village wise distribution of physical programmes, subsidy, credit needs etc. from the lead bank scheme for extending the banking habit in every part of the country in mobilizing the savings of the people and reducing regional disparities and also faster development of backward areas. The lead bank does not have the monopoly as such in banking business in the allotted districts, but is expended to function as a consortium leader. The success of lead bank is judged not so much by the banking business or even the development work done by its own offices in the district, but by the total improvement it is able to bring through the banking system.