RBI Issues Master Circular on Lead Bank Scheme

Varun Hariharan

16 Jul, 2020

The history of Lead Bank Scheme (LBS) can be traced back to October 1969, when a study group headed by Prof. DR Gadgil submitted its report on Organizational Framework for the Implementation of the Social Objectives. The study group found that Commercial Banks did not have adequate presence in the rural areas; moreover, they also lacked the required orientation. As a solution to this issue, the Study Group suggested the adoption of an ‘Area Approach’ to develop plans and programs for the development of adequate banking and credit structure in rural areas.

This idea of ‘Area Approach’ suggested by the Study Group was endorsed by the Reserve Bank of India (RBI) with all seriousness and appointed a Committee of Bankers on Branch Expansion Programme of public sector banks.  The Committee suggested, for enabling Public Sector Banks to discharge their social responsibilities, each Bank should lay its focus on certain districts where it should act as a ‘Lead Bank’. Following the recommendations given by the Committee, RBI introduced the Lead Bank Scheme in December 1969.

Objectives of the Lead Bank Scheme

The main objectives of ‘Lead Bank Scheme’ are as follows:

• The prime objective of the ‘Lead Bank Scheme’ is to provide adequate banking and credit in rural areas through the adoption of the ‘Area Approach’ with one Bank assigned for one area.
• To identify the unbanked and underbanked centers in districts and to further evaluate their physiographic, agro-climatic, and socio-economic conditions through the economic survey.
• Lead Bank Scheme also aims at removing regional imbalances through appropriate credit deployment.
• Extend banking facilities to unbanked areas.
• Estimate the credit gaps in numerous sectors of an economy of a district and prepare a credit plan accordingly.
• Bring structural and procedural changes in the banking sector.
• Develop co-ordination and co-operation amongst financial and non-financial institutions in the overall development of the districts.
• Serve as a clearinghouse for discussing the problems arising out of financing priority sectors.

Constitution of State Level Banker’s Committee (SLBC)

The State Level Banker’s Committee (SLBC) was constituted in April 1977, to create adequate co-ordination machinery in all States, on a uniform basis for the development of the State. SLBC is chaired by the Managing Director (MD) of the Convener Bank. The Committee comprises representatives of commercial banks including Small Finance Banks, RBI, NABARD, heads of government departments, etc.

SLBCs play a vital role in the development of the State, and their meetings are held regularly at a quarterly basis.

Revised Illustrative Guidelines on the conduct of SLBC Meetings to further the objectives of Lead Bank Scheme

The following agendas are to be discussed in SLBC meetings:

• Analysis of financial inclusion initiatives, expansion of banking network, and Financial Literacy.
• Review of credit disbursement by banks.
• Doubling of Farmers Income by 2022.
• Review of Districts with Credit-Deposit ratio below 40% and the working of Special Sub-Committees of the DCC (SSC).
• Position of Non-Performing Assets (NPAs) in respect of schematic lending. Certificate Cases and Recovery of NPAs.
• Review of restructuring of loans in natural disaster affected districts in the State, if any.
• Discussion on policies initiated by the Centre/State government/RBI, such as Industrial Policy, MSME Policy, Agriculture Policy, Start-up Policy, etc.
• Deliberation on enhancing rural infrastructure/ credit absorption capacity.
• Review of steps towards skill development through various schemes and services like Horticulture Mission, National Skill Development Corporation, Agriculture Skill Council of India (ASCI), etc.
• Review of efforts towards improving land records, progress in the digitization of land records, and seamless loan disbursements.
• Sharing success stories and new initiatives at the district level that can be performed in other districts as well.
• Discussion on Market Intelligence Issues for example Banking Related Cyber Frauds, phishing, etc.
• The timely submission of data by banks, adhering to the schedule of the SLBC meeting.

Other than the agendas mentioned above, the State Level Banker’s Committee (SLBC) can include any other agenda item considered necessary.

Yearly Calendar of Meetings of SLBC

RBI has advised SLBC Convener Banks to prepare a yearly calendar of programmes at the start of the year for conducting the meetings. This advisory has been put out by RBI to improve the effectiveness and streamline the functioning of SLBC meetings. The main objective of preparing the calendar of meetings at the beginning of the year is to ensure the adequate notice of these meetings and timely compilation and dispatch of agenda papers to all stakeholders.

The table below mentions the broad guidelines that should be used to prepare the calendar of programmes:

Implementation of the Lead Bank Scheme

Preparation of credit plans

For the successful implementation of the Lead Bank Scheme, it is important to plan credit plans by identifying block-wise/ activity-wise potential estimated for various sectors.

Potential Linked Credit Plans (PLPs)

PLPs are a step towards decentralized credit planning with the basic objective of mapping the existing potential for development through bank credit. PLPs are expected to emphasize the promotion of sustainable agricultural practices suitable to local conditions.

While preparing PLPs, the focus must be on identifying processes and projects that:

• Reduce carbon foot-print;
• Prevent the overuse of fertilizers;
• Ensure efficient utilization of water; and
• Address agricultural pollution issues.

Credit Plans Review

The credit plans performance is reviewed in various for created under the Lead Bank Scheme as given below:

Direct Benefit Transfer (DBT)

DBT was introduced out by the Government of India in selected districts in January 2013 and was further expanded into other districts. Banks are advised to co-ordinate with the government authorities to roll out DBT. It is advised for Banks to include the status of roll-out of DBT as a regular agenda of discussion in SLBC meetings.

Further, to make disbursements at doorsteps through ICT based BC model, banks have been advised to:

• Complete the opening of bank accounts and adding of Aadhaar numbers in all bank accounts.
• Monitor the progress in adding of Aadhaar number with the Bank accounts of beneficiaries.
• Create a DBT implementation co-ordination committee along with the State Government’s concerned department at the district level and review the adding of Aadhaar numbers in Bank accounts.
• Frame a Complaint Grievance Redressal mechanism in each Bank and also nominate a Complaint Redressal Officer in each district.

Doubling Farmers Income by 2022

The Government of India aims at achieving its objective of doubling the farmer’s income by 2022. The government has taken various steps to achieve this objective, such as setting up an inter-ministerial committee to prepare a blueprint for the same. Lead Bank Scheme, which makes sure the interdepartmental/governmental co-ordination in the financial sector, is expected to take further the objective of doubling farmer’s income by 2022.

Lead banks are advised to ensure that:

• They work closely with NABARD to prepare Potential Linked Credit Plans (PLPs) and Annual Credit Plans (ACPs).
• Include the agenda of doubling the income of farmers by 2022 as regular agenda under the Lead Bank Scheme in various meetings of SLBC.
• Lead banks may also use the benchmarks provided by NABARD.

Expanding and Deepening of Digital Payments Ecosystem

With a view to expanding the digital payments ecosystem, the SLBCs are advised to identify one district in their respective states on a pilot basis to make the district 100% digitally-enabled within one year. This step aims at enabling every individual in the district to make/receive payments digitally safely and conveniently.

Final Thoughts