Lead Bank Scheme

Prof. D.R. Gadgil Study Group (1969):

• The study group was appointed by the National Credit Council (NCC) in 1969 under the chairmanship of Prof. D.R. Gadgil.
• It recommended the Service Area Approach for the development of the financial structure in India.

F.K.F. Nariman Committee (1969):

• In the same year, RBI appointed the F.K.F. Nariman Committee to examine the recommendations of Prof. Gadgil’s study group.
• The Nariman committee endorsed the idea of the Service Area Approach proposed by the Gadgil committee and recommended the formulation of the Lead Bank Scheme.

Lead Bank Scheme (1969):

• Based on the Nariman committee’s recommendations, RBI accepted and implemented the Lead Bank Scheme from 1969 onwards.
• Under this scheme, specific districts are allotted to various banks, with each bank taking a lead role in identifying potential areas for banking and expanding credit facilities within those districts.

The main functions of a Lead Bank under the Lead Bank Scheme are:

1. Survey and Assessment: Conduct surveys to identify banking and credit needs in the allotted district.
2. Credit Planning: Prepare district-level credit plans to promote financial inclusion and development.
3. Coordination: Act as a link between banks, government agencies, and local authorities for smooth implementation of credit programs.
4. Monitoring: Monitor the flow of credit to priority sectors such as agriculture, small industries, and rural development.
5. Financial Inclusion: Promote banking services in rural and underserved areas, ensuring access to credit and other financial services.

• Regional Rural Banks

Origin:

• The All India Rural Credit Review Committee (1969), chaired by Sri. B. Venkatappaiah, highlighted that marginal and small farmers lacked access to cooperative credit.
• The M. Narasimham Committee was formed to address these issues and recommended the establishment of Regional Rural Banks (RRBs) to meet the credit needs of weaker sections in rural areas.
• The Government of India accepted the recommendation, and RRBs were established under the Regional Rural Banks Ordinance on September 26, 1975, later replaced by the Regional Rural Banks Act, 1976. Initially, five RRBs were set up on October 2, 1975.

• Initially only 5 RRBs were set up on pilot basis with sponsorship of commercial banks on October 2nd, 1975. This ordinance of 1975 was replaced by the Regional Rural Banks Act, 1976. The list of five RRBs opened in the country

• Prathama Bank – Sponsored by Syndicate Bank
• Uttaranchal Gramin Bank – Sponsored by Punjab National Bank
• Aryavart Gramin Bank – Sponsored by Reserve Bank of India (RBI)
• Narmada Jhabua Gramin Bank – Sponsored by Bank of Baroda
• Madhya Bihar Gramin Bank – Sponsored by Reserve Bank of India (RBI)

Objectives of RRBs:

• Develop the rural economy.
• Provide credit for agriculture and allied activities.
• Encourage small-scale industries and artisans in rural areas.
• Reduce reliance on private moneylenders.
• Serve the financial needs of marginalized and tribal communities by opening new bank branches.
• Support the consumption needs of financially poor people.

Functioning of RRBs:

• Each RRB is sponsored by a scheduled commercial bank and operates in one or two districts, serving roughly 20,000 people per branch.
• The authorized share capital is ₹1 crore, contributed by the Central Government (50%), State Government (15%), and the Sponsoring Bank (35%).
• Interest rates on loans are similar to those of Primary Agricultural Credit Societies (PACS), but deposits offer 0.5% more interest than commercial banks.
• RRBs simplify the loan process, use local languages for transactions, and maintain low operational costs compared to commercial banks.

• RRBs have simplified procedural formalities in giving agricultural finance on recommendations of Sri. Baldev Singh’s working group.