Lead Bank Scheme

The Lead Bank Scheme (LBS) is a decentralised institutional framework for banking development and district-level credit planning in India. Introduced by the Reserve Bank of India (RBI) in December 1969, the scheme represents the operationalisation of India’s social banking philosophy, under which commercial banks were expected to combine developmental responsibilities with commercial objectives. The scheme was designed to address regional imbalances in banking infrastructure and credit flow, particularly in rural and backward regions.

Background and Evolution of the Scheme

National Credit Council (1967)

The National Credit Council (NCC) was constituted to determine sectoral priorities in bank credit allocation. Its deliberations revealed that the formal banking system was largely urban-centric and was failing to meet the credit requirements of agriculture, small-scale industries, and rural livelihoods.

Gadgil Study Group (1968–69)

In October 1968, the NCC set up the Study Group on the Organisational Framework for the Implementation of Social Objectives under the chairmanship of Prof. D. R. Gadgil.
The group found that:

• Commercial banks covered only about 5,000 villages out of more than 5 lakh villages.
• Commercial banks contributed only about 1% of institutional agricultural credit, while cooperatives accounted for nearly 39%.
• Rural and backward areas were largely excluded from formal banking.
• Lending was fragmented, poorly coordinated, and weakly supervised.

The group concluded that market-driven banking alone could not bridge development gaps and recommended an area approach to correct spatial and structural imbalances in credit flow.

Nariman Committee (1969)

The Nariman Committee, headed by F. K. F. Nariman, endorsed the area approach and recommended

• District as the basic unit of banking and credit planning.
• Assignment of each district to a designated bank acting as a Lead Bank.

These recommendations led to the formal launch of the Lead Bank Scheme in December 1969.

Conceptual Framework of the Lead Bank Scheme

Area Approach

The central idea of the Lead Bank Scheme is the area approach, which involves concentrated and coordinated banking efforts within a defined geographical area. This approach seeks to avoid scattered and overlapping lending and to integrate credit planning with the district’s development potential.

District as the Basic Unit

Under area approach, district was chosen as the basic unit of planning due to the availability of administrative machinery, feasibility of coordination with government departments, and ease of monitoring and review. District-level planning allows credit deployment to be aligned with local economic activities and infrastructure conditions.

Lead Bank as Consortium Leader

Under the scheme, one commercial bank is designated as the Lead Bank for each district. The Lead Bank does not enjoy monopoly rights; instead, it acts as a consortium leader coordinating with:

• Commercial Banks
• Regional Rural Banks (RRBs)
• Cooperative Banks
• Development Institutions
• District Administration

Its role is strategic and facilitative rather than competitive.

Objectives of the Lead Bank Scheme

Developmental and Inclusion Objectives

The Lead Bank Scheme aims to expand banking outreach, ensure balanced sectoral credit flow, and reduce regional disparities in banking development. It seeks to provide institutional credit to priority sectors such as agriculture, MSMEs, weaker sections, education, and housing, while promoting employment generation and income enhancement.

Institutional Coordination Objectives

Another key objective is to institutionalise coordination between banks and government agencies at the district level. Through regular forums, the scheme aligns credit delivery with government development programmes and improves implementation efficiency.

Institutional Architecture under LBS

Lead District Manager (LDM)

Each Lead Bank establishes a Lead District Office headed by a Lead District Manager. The LDM functions as the nodal banking authority at the district level and serves as the interface between banks and the district administration. Responsibilities include credit planning, coordination of financial inclusion initiatives, convening meetings, and monitoring progress. RBI has repeatedly emphasised the need to strengthen LDM offices in terms of staffing, infrastructure, and analytical capacity.

Block Level Bankers’ Committee (BLBC)

BLBC is the grassroots-level forum that coordinates banking and development activities at the block level. It is chaired by the Lead District Manager (LDM) and includes representatives from all banks operating in the block, NABARD, block-level government officials, and technical officers. BLBC meetings are held quarterly and focus on preparing and reviewing Block Credit Plans, resolving operational issues, and improving credit absorption capacity.

District Consultative Committee (DCC)

The DCC is the primary coordination forum at the district level. It is chaired by the District Collector and convened by the Lead District Manager. Members include representatives of RBI, NABARD, commercial banks (including Small Finance Banks and Payments Banks), RRBs, cooperative banks, and district-level government departments. DCC meetings are held quarterly and review progress under financial inclusion, District Credit Plans, priority sector lending, government schemes, MSME financing, SHG-bank linkage, and relief measures during natural calamities.

District Level Review Committee (DLRC)

DLRC is a review-oriented forum that focuses on evaluating the implementation of district credit plans and banking services. It is also chaired by the District Collector and includes Members of Parliament, MLAs, and other public representatives. DLRC meetings are held at least once a quarter and provide a platform for public representatives to give feedback on banking services and credit delivery.

State Level Bankers’ Committee (SLBC)

SLBC is the apex forum at the state level, constituted in 1977. It is chaired by the CMD or Executive Director of the SLBC Convenor Bank and co-chaired by a senior state government official. SLBC meetings are held quarterly and focus on policy-level issues, financial inclusion, credit deployment, CD ratio, digital payments, infrastructure gaps, and implementation of central and state government schemes. Sub-committees may be formed for specific issues such as agriculture, MSMEs, and digital payments.

District Credit Plan (DCP) as the Core Instrument

Preparation and Structure

The District Credit Plan is the central operational instrument of the Lead Bank Scheme. It is prepared annually based on Potential Linked Credit Plans (PLPs) prepared by NABARD. The DCP estimates sector-wise credit requirements, allocates indicative lending targets among banks, and aligns district-level planning with Priority Sector Lending norms.

Developmental Significance

Following bank nationalisation, the DCP became a key mechanism for directing credit towards sectors previously neglected by commercial banks, such as small and marginal farmers, artisans, rural enterprises, and weaker sections.

Village Adoption Scheme (VAS)

The Village Adoption Scheme was introduced to promote intensive and supervised rural lending during the early phase of rural banking expansion. Under this scheme, banks adopted selected villages to avoid scattered credit, improve monitoring and recovery, and establish stable banking relationships. The emphasis was on systematic credit delivery rather than preferential allocation.

Decline in Momentum of the Scheme

Over time, the effectiveness of the Lead Bank Scheme declined due to banking liberalisation, greater emphasis on commercial autonomy, weak coordination among stakeholders, duplication of planning exercises, and irregular functioning of LBS forums.

Weak Management Information Systems and data inconsistencies further undermined effective monitoring. There was also a perception that the scheme constrained banks’ commercial judgement.

Usha Thorat Committee (2009) and Revitalisation

The High-Level Committee on the Lead Bank Scheme chaired by Usha Thorat found that government-sponsored schemes accounted for only a small proportion of Priority Sector Lending and that LBS forums were overly focused on routine reviews rather than strategic planning.

Major Recommendations

• Continue the Lead Bank Scheme due to its relevance.
• Shift focus from credit disbursement to financial inclusion.
• Increase participation of private sector banks.
• Strengthen the Business Correspondent (BC) model.
• Ensure banking access in villages with population above 2,000.
• Relax KYC norms for small-value accounts.
• Respect banks’ commercial judgement.

Contemporary Framework under RBI Master Circular 2025

As per the RBI Master Circular 2025:

• Lead Bank responsibility has been assigned in 782 districts across the country.
• Twelve public sector banks and two private sector banks (Jammu & Kashmir Bank and ICICI Bank) act as Lead Banks.
• SLBC or UTLBC convenorship for 28 states and 8 union territories has been assigned to 11 public sector banks and one private sector bank.
• The Lead Bank Scheme now covers all districts, including metropolitan areas, bringing the entire country under its ambit.

Key Focus Areas under the Current Framework

Banking Penetration and Financial Inclusion

The scheme emphasizes universal access to banking services through branches, Business Correspondents, ATMs, mobile vans, and other digital modes. Special focus is given to unbanked rural centres and villages with population above 5,000 without a bank branch. The National Strategy for Financial Inclusion (2019–2024) goals are integrated into LBS planning.

Credit–Deposit (CD) Ratio

Banks are advised to achieve a CD ratio of at least 60 percent in rural and semi-urban areas on an all-India basis. Districts with CD ratios below 40 percent are monitored through Special Sub-Committees of DCCs, and districts with CD ratios below 20 percent receive special attention with joint efforts by banks and state governments.

Direct Benefit Transfer (DBT)

The Lead Bank Scheme plays a crucial role in DBT implementation by ensuring universal bank account coverage, Aadhaar seeding, and availability of banking outlets at the village level. DBT progress is a regular agenda item in SLBC and DCC meetings.

Service Area Approach (SAA)

While restrictive service area norms have been removed, the positive features of SAA—such as credit planning and monitoring—are retained. Banks are encouraged to lend freely across rural and semi-urban areas, except where specific government schemes prescribe service areas.

Enhancing Farmers’ Income and Digital Payments

LBS forums are used to coordinate efforts for enhancing farmers’ income through credit support for irrigation, value addition, allied activities, and agri-infrastructure. Additionally, SLBCs are tasked with expanding and deepening the digital payments ecosystem, including the goal of making districts fully digitally enabled.

LBS now acts as a district-level implementation arm for national priorities such as:

• PM Jan Dhan Yojana
• DBT architecture
• SHG-Bank linkage
• Kisan Credit Cards
• Digital financial services

Significance and Achievements

The LBS was a major step towards “social banking.” It ensured that after nationalization, banks didn’t concentrate only on profitable urban areas but also took responsibility for rural development. As a result, banks significantly increased their presence in rural India from the 1970s onward, guided by LBS planning. Thousands of villages got their first bank branch in the 1970s and 1980s, which facilitated credit availability and savings mobilization.

• It helped identify and address credit gaps at the grassroots. For example, if a district’s economy was primarily horticulture but farmers lacked term loans for orchards, the lead bank could initiate a scheme in the district for horticulture financing and get all banks to participate. Such targeted interventions led to better allocation of credit where it was most needed.
• The scheme fostered cooperation instead of competition among banks in matters of development. By bringing all players (public banks, private banks, cooperatives) to the table with local government, it created a platform for collective problem-solving. For instance, issues like recovery of loans (especially government-sponsored loans) improved via coordination with local authorities in DCC meetings. Banks also shared the responsibility of difficult areas instead of avoiding them.
• LBS laid the groundwork for later initiatives. In recent programs like PM Jan Dhan Yojana, lead banks in each district were crucial in conducting account opening drives and financial literacy camps to ensure every household was covered. Similarly, for the PM SVANidhi street vendor loan program (2020), LDMs coordinated identification of beneficiaries across towns in their district.
• Over time, the district credit plans have grown in ambition and scope, reflecting economic growth. They now cover not just basic sectors but also newer priorities (like self-help group financing, renewable energy loans, export credit for artisans, etc.). Tracking of credit to weaker sections (like SC/ST, minorities) is also done at district level to ensure inclusive lending.
• The scheme has also been an instrument for financial literacy and inclusion drives. Lead banks often coordinate Financial Literacy Centers (FLCs) in districts and organize outreach programs in unbanked villages in line with RBI’s financial inclusion plans.

Current Perspective

The Lead Bank Scheme has continued till date for over six decades, adapting to changes. Today’s lead bank offices use data analytics and GIS mapping to identify service gaps. For example, they map villages without banking service within 5 km and allocate them to banks for coverage (through a branch, BC, or ATM). This aligns with the national goal of having a banking outlet in every 5 km radius.  The focus has expanded from just credit planning to financial inclusion monitoring. Lead banks track opening of PMJDY accounts, Aadhaar seeding in accounts, distribution of RuPay cards, enrollment under insurance/pension schemes, etc. in their districts. This comprehensive monitoring ensures all aspects of inclusion are progressing together.  The Lead Bank Scheme also dovetails with the Annual Credit Plan targets under the Priority Sector Lending regime. Achieving the district-level PSL disbursement targets is now a metric tracked by RBI. Thus, LBS directly contributes to meeting national PSL goals which are crucial for inclusive growth. There is a renewed push for lead banks to focus on Aspirational Districts (districts identified by NITI Aayog for developmental attention due to poor socio-economic indicators). In such districts, lead banks have special drives for things like opening accounts for every adult, saturating all farmers with KCCs, ensuring all eligible SHGs get bank linkage, etc.