Fourteen Major Commercial banks were nationalised on July 19, 1969. A number of measures were taken to correct the imbalances in banking growth and to achieve the various goals of nationalisation, in post nationalisation era.
The formulation and implementation of the lead bank scheme, the credit guarantee scheme, introduction of performance budgeting in commercial banks, etc., are some of the important supportive measures initiated by the authorities concerned.
The lead bank scheme is by far the most important supportive action taken by the authorities in the direction of enabling banks to achieve the various objectives of nationalisation.
In terms of the recommendations of the study group of the National Credit Council (NCC) and the Nariman Committee, the Reserve Bank of India finalised the Lead Bank Scheme.
Under the scheme, all districts, of course, with the exception of metropolitan areas of Bombay, Calcutta, Madras and the Union Territories of Delhi, Goa and Chandigarh were distributed among banks for the purpose of organising banking development on planned lines.
The State Bank group has been allotted 89 districts, while the 14 nationalised banks have been allotted 250 districts. The three private sector banks have been given 9 districts.
Allotment of districts was guided by several considerations, such as size of the bank, adequacy of its resources, contiguity of districts etc. The scheme which was almost a novelty was regarded as an important method to correct regional imbalances in banking growth.
Until that time, Indian banking was following economic development, instead of spearheading it. In other words, banks were concentrating their operations only in economically advanced regions. That was why backward states and regions remained under-banked.
The authorities recognised that the absence of organised banking comes in the way of planned economic development. With a view to aligning bank functioning with Plan priorities and involving the banking system intensively in the process of economic development of different regions, the concept of `area’ or `project’ approach was given concrete shape and the lead bank scheme was introduced in December, 1969.
Dual Role :
The lead bank had to play a dual role in the matter of development of banking and credit in the districts allotted to it. It had to plan and organise banking development of the district in a manner conforming to the plans prepared by the Government or the district administration for the economic development of the district.
Thus, the lead bank had to lead banking and economic growth of the districts allotted to it. It had to function as the leader of the consortium of banks operating in the district.
The scheme was a partnership business. All the banks operating in a district are partners in this business and the lead bank is the active partner.
It had to enlist the co-operation of other banks functioning in the district, including co-operative banks. It had to build up and maintain close contact and liaison with Government and quasi-Government agencies which are entrusted with the task of brining about economic development of the district.
By associating itself closely and actively with the economic activities of all types the lead bank was expected to spearhead the process of economic development of the districts in respect of which it was playing the lead role.
Thus, under the scheme, the lead bank had to lead the growth process by means of providing “banking” and “credit” leadership in the district.
The lead bank scheme has been in operation for nearly four decades now. Considerable progress has been made in the implementation of the scheme. Lead Banks completed the surveys of all districts. On the basis of these surveys lead banks estimated the deposit potential and credit gaps. Unbanked and underbanked centers were identified and such centers were allotted to different banks for branch expansion.
Branch Expansion :
Progress made by banks in the sphere of branch expansion was really significant.
However, it must be noted that branch expansion was conditioned by a good number of factors, some of which were beyond the control of the lead banks. In spite of this, the performance in the area of branch expansion in post-nationalisation period has been really impressive as could be seen from the following table:-
Growth of Banking Sector
Sl No Parameters 1969 2007 Increase
1 No of branches 8262 70711 8.5 times
2 Deposits (Rs in Crores) 4646 25,98,823 559 times
3 Advances (Rs in Crores) 3599 19,49,567 542 times
4 Population per branch 64000 16000 -4 times
5 Deposits per branch Rs.56 Lakhs Rs.36.75 Crores 66 times
6 Advances per branch Rs.44 Lakhs Rs.27.57 Crores 62.6 times
In post-nationalisation era till to-day, banking expansion in India has been phenomenal. The share of banking and insurance in India’s GDP is over 5 per cent now. There is an elaborate and vast network of scheduled commercial banks now with 181 commercial banks (of which, 96 RRBs) operating with 71497 branches as at the end of June 2007. In addition, there are 1853 Urban Co-operative Banks and 109924 Rural Co-operative Credit Institutions Loans and advances constitute over 50 per cent of GDP and nearly 65 percent of branches are in rural and semi-urban areas. Banks have been playing a crucial role in driving economic growth by financing various sectors of the economy. CD ratio has now gone up to 75 per cent as against the benchmark of 60 per cent.
The vast network of bank branches to-day and the significant progress achieved in the areas of deposit mobilisation and credit expansion were due in no small measure to the implementation of Lead Bank Scheme.
Role in Altered Scenario :
In the altered context to-day there is need to revamp and revitalise the lead bank scheme and redefine its role. A high power committee has been constituted to examine the role of the scheme in the present scenario under the leadership of Smt Usha Thorat, Dy Governor of RBI. Usha Thorat is the Chairperson
The High Level Committee consists of the following:-
1. Usha Thorat Dy Governor RBI Chairperson
2. Manjula Subramanian, Chief Secretary, Govt of Maharastra Member
3. R J M Pillai, Dev Commissioner, Govt of Bihar “
4. Sudhakar Rao, Chief Secretary, Govt of Karnataka “
5. H S Das, Principal Secretary (Finance) Govt of Assam “
6. M V Nair, Chairman & Managing Director, Union Bank of India “
7. Dr K C Chakraborty, CMD, Punjab National Bank “
8. Anoop Benarjee, Dy MD, SBI “
9. M Balachandran, Director, Institute of Banking Personnel Selection, Mumbai “
10. B Vijayendra, Regional Director, RBI, Rajasthan “
11. G Srinivasan, Chief General Manager, RPCP, RBI, Mumbai Member Secretary
The Chairman NABARD & Chairman SIDBI will be permanent invitees for all meetings.
The terms of reference are:-
1. To prepare a comprehensive set of objectives and scope of Lead Bank Scheme
2. To make recommendations for rationalisation of various committees/fora and functions under the scheme.
3. To recommend measures to improve the effectiveness of the scheme particularly for encouraging greater decentralised approach, dissemination of policies/guidelines, implementation of policies at local level and creation of awareness of banks’ products and policies.
4. To make recommendations relating to timely and consistent information and monitoring system taking advantage of improved IT capabilities in the banking system.
5. To prepare comprehensive guidelines and manual of instructions based on the above.
Initial Focus
Immediately after its adoption in the year 1969, the Lead Bank Scheme focused on surveys of all the lead districts and identification of unbanked and underbanked centers. In the 1970’s the focus of the scheme was expansion of network of bank branches in Lead Districts, particularly in identified unbanked centers. In the 1980s however there was reduced focus on branch expansion but increased focus on credit planning and formulation and implementation of district credit plans. In the 1990’s service area approach became the area of focus and concentration under the Lead Bank Scheme. Now in the past reform-era, following a thorough change in the scenario there is a need for redefining the role of the Lead Bank Scheme. It is hoped that the high power committee headed by Smt Usha Thorat will undertake a thorough and comprehensive study and come out with appropriate recommendation to revamp and revitalise the scheme. The committee has to provide a comprehensive definition of the new rate of the scheme.
New Players :
The Lead Bank Scheme must be revamped and revitalised in such a manner that it becomes competent to play its role in the present day context. To-day, we find many new players in a district apart from banks and financial institutions. The new players include new private sector banks Micro Finance Institutions, self-help groups, NGOs, Small and Medium Enterprises (SMEs) etc. There are also trusts engaged in the task of rural development. In view of the entry such new entities credit planning at the district level must undergo a change so as to cover and involve all these entities and institutions.
The SME sector has district focus and product focus. There are also artisans and crafts persons, entrepreneurs of different categories, persons engaged in rural non-farm activities. All these should be covered in the district credit plan. Potential linked plans of NABARD must be merged and integrated with district credit plan.
The Arjun Sengupta Committee on the unorganised sector also found banks’ inability to reach the small village entrepreneurs. In fact, the real problem lies somewhere else. The core objective of banks is business. Creating the right environment for small enterprises should also be the core objective of the Government and development agencies.
A healthy SHG can address the multifaceted problems of a village as the awareness of a common goal narrow the caste divide, develops a spirit of co-operation among villagers and takes care of all kinds of development works in the village. Additionally, it channels the village’s idle energy into various business propositions.
Nevertheless, banks need to be judicious. Too stiff a target for financial inclusion could pose a problem as it would force banks to sacrifice quality in pursuit of numbers. SHGs should not be made into a mass revolution; rather they should be seen as a natural evolution that happens with the co-ordinated effort of banks, villagers and the extension agencies for the common good.
The findings and suggestions of Arjun Sengupta Committee must also be kept in view while preparing a blue print for revamp of Lead Bank Scheme.
Financial Inclusion :
Complete and total financial inclusion is a task that has to be achieved by banks. This is a great challenge. Financial inclusion must not get reduced to the ritual of opening no-frills savings ank accounts at the rate of one account per household. It should on the other hand, become real and meaningful financial inclusion. The financially included must be enabled to learn and acquire savings habit, banking habit, financial literacy, credit literacy the manner of utilising credit for undertaking a productive activity and earning some income for livelihood etc. The setting up of Financial Literacy and Credit Counseling Centers (FLCCs) in all villages may became a necessity. The financially included must be enabled to come to the mainstream of financial and economic life. This is a real challenge. The Lead Bank Scheme must play an effective role in accomplishing this task. Preparation and launching of financial inclusion plans at district, block and village levels will become necessary. The Lead Bank Scheme must be given a definite role to play in this regard.
Revamping Data Collection :
At present, the District Level Co-ordination/Consultative Committees are headed by Dy Commissioners/District Collectors as Chairman. The Lead District Manager who is a Scale III Officer on Middle Management Grade looks after the work relating to data collection and compilation, preparation of District Credit Plan, convening meetings, preparation of proceedings of the meetings etc. Most of the time of Lead District Manager is spent in collection of data from banks. It is necessary to revamp the system of data collection. All the banks must be made to submit relevant data and statistics on line on a daily basis. If data and statistics reach the Lead District Manager on a daily basis without any need for reminder and follow up, the Lead District Manager can find adequate time to focus on his major tasks and responsibilities such as preparation of District Credit Plans formulation of financial inclusion plans, compilation of review reports regarding progress in implementation of various plans, schemes and projects etc.
The meetings of District level co-ordination/consultative committees are now held by way of a ritual and reviews are conducted in a routine manner. The meetings must be made purpose-oriented and discussions in the meetings must become meaningful and purposive. The discussions in the meetings of various sub-committees must also become purpose-oriented and fruitful.
At present, the committees like District Level Bankers’ Committee District Co-ordination committee and District level review committee etc seldom function with any seriousness. This position has to be corrected. The District Collectors or Dy Commissioners must give full importance to the review meetings and other important discussions. Also, the Lead Bank Scheme needs to be re-invigorated with clear guidelines on respecting commercial judgements of bankers even as they fulfil their sectoral targets.
Empowerment of Lead District Office :
At present, the Lead District Manager is only a Scale III Officer. It is better to upgrade the post of Lead District Manager to that of Scale V post. Scale V Officers on Senior Management Grade must be posted and their designation must be changed as Chief Lead District Managers. The Chief Lead District Manager must have a Deputy in Dy Lead District Manager. He must be an officer on Scale IV in senior management grade. In the Lead District Office there must be a district credit planning and financial inclusion committee. A couple of economists and chartered accountants of the district can be included as members on this committee. In the review process also a few economists and chartered accountants of the district can be involved. The Lead district Office must be adequately empowered to discharge its role effectively. The high power committee may look into all the above aspects. The committee must examine the present structure of Lead District Office steps required to empower the Lead District Office authority of different functionaries issue of co-ordination with banks and various government agencies and also with new players in the district plan formulation process, information system reporting mechanism and monitoring system and make appropriate recommendations.
Identification and meeting of challenges :
The high power committee must also identify the challenges to be faced by the scheme in the altered scenario to-day and spell out the manner in which such challenges can be faced with adequate measure of success.
Co-ordination with new players such as private commercial banks housing finance companies, micro finance institutions, NGOs, rural development trusts, etc and bringing about their involvement and participation, through the process of synergising their efforts towards larger goals of the district will be a challenge for the revamped Lead Bank Scheme. The high power committee has to examine this in depth and make suitable suggestions and recommendations.
The committee has to examine and suggest how balancing profitability with more and more inclusiveness in the matter of extension of banking services and banking products can be done. In the present competitive environment transaction costs have to be reduced further even while ensuring social and geographical spread of banking services. Utilisation of banking correspondents, launching of rural ATMs, using the services of post offices as agents of banks in rural branch-less locations etc must be examined.
Promotion of financial literacy, credit literacy and a good and healthy repayment culture will be another challenge. A healthy banking mentality must be developed among the rural poor. The committee has to examine this and come out with useful suggestions for facing the above challenge.
The above are only some examples of the challenges involved in implementing the revamped lead bank scheme in the altered scenario of to-day. There may be many more similar challenges which the high power committee can identify and spell out how such challenges can also be faced successfully. The high power committee may also explore the possibility of involving corporates in the process of district development. The support of corporates may be required by way of discharge of their corporate social responsibility. Corporates may play an important role in expanding the basic infrastructural facilities. The revamped LBS must become an effective instrument in bringing about full and active involvement of all member banks and all new players in the district such as new private banks, micro finance institutions self help groups, rural co-operative credit societies, NGOs, rural development trusts, proposed FLCCs that may come into being in due course and all government agencies.
Unity of Purpose :
It is also necessary to ensure that adequately qualified officers with flair for co-ordinating, development and monitoring work are identified and posted as chief Lead District Managers and Dy Chief Lead District Managers. Officers having relevant educational qualification such as MA (Economics), M Com, or MBA (Finance) must be selected for those posts. The Regional Director of RBI in each State must also take the revamped scheme and its implementation seriously so that, all banks, NABARD and other new players in the district come forward to involve themselves actively in the implementation of the scheme. Financial inclusion calls for united action on the part of all banks and financial institutions and unity of purpose on the part of all players in a district. An approach on the lines of area approach can be adopted and in each area or location a particular bank can be given responsibility for achieving full and meaningful financial inclusion. These aspects must also be looked into by the high power committee.
The Lead Bank Scheme which played an important role in bringing about speedy expansion of bank branches in post nationalisation era, can surely make significant contribution to the achievement of full comprehensive and meaningful financial inclusion and also to inclusive growth if the scheme is thoroughly revamped and revitalised and the revamped LBS is effectively implemented in all the districts in India with the active involvement of all banks, all other players in the district and all concerned government departments. With a revamped and revitalised Lead Bank Scheme alone the objectives of full financial inclusion, strengthening and expansion of micro finance including productivity linked home micro finance and extricating the rural masses from the debt trap etc can be accomplished.[Published in Southern Economist dated 15th September,2008]
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