Lead Bank Scheme
Gadgil Committee and Genesis of Lead bank Scheme
Prior to the Nationalization of the Banks, a National Credit Council was set up in Dec. 1967 to determine the priorities of bank credit among various sectors of the economy. The NCC appointed a study group on the organizational framework for the implementation of social objectives in Oct.'68 under the Chairmanship of Prof. D R Gadgil. This is known as Gadgil Committee.
The study group found that the:
Commercial Banks had penetrated only 5000 villages as of June'67 and out of the institutional credit to agriculture, at 39%, the share was negligible at 1%, the balance being met by the co-operatives.
The Banking needs of the rural areas in general and backward in particular were not taken care of by the Commercial Banks.
Besides, the credit needs of Agriculture, SSI and allied activities remained neglected.
Therefore, the group recommended the adoption of an area approach for bridging the spatial and structural credit gaps. Later, All India Rural Credit Review Committee 1969 endorsed the view that CBs should increasingly come forward to finance activities in rural areas.
Lead Bank Scheme was first of all adopted in 1969 on the recommendations of "Organizational Framework for implementation of Social Objectives" known as Gadgil Committee, which recommended an area approach for the appropriate credit arrangements as per the local conditions.
Another committee known as 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. Thus the scheme was named as "Lead Bank Scheme".
What is a Lead Bank?
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.
How the scheme progressed?
All the districts 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.
The next important development in the history of LBS was the constitution of District Consultative Committees (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.
The second and most important phase of the LBS was formulation of District credit plan (DCP) 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 hitherto neglected were given a priority status and banks were asked to provide credit to these sectors in a more concerted way.
Later, under Village Adoption scheme (VAS), 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.
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 hitherto 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:
Eradication of unemployment and under employment
Appreciable rise in the standard of living for the poorest of the poor
Provision of some of the basic needs of the people who belong to poor sections of the society