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The concept of ‘Lead Bank Scheme’ was first mooted by the Gadgil Study Group, which submitted its report in October 1969. The Group was of the view that banking was not developed in India judging by the criterion of population served per bank office. The average population served by a commercial bank office in India was as high as 73,000 as against 4,000 in United Kingdom and 7,000 in USA. In the rural areas, it was found that only one per cent of the total number of villages (5,64,000) were served by commercial banks as at the end of June 1967. Further, there was an uneven spread of bank offices and banking business as between States and population groups. Thus, commercial banks did not have adequate presence in rural areas and also lacked the required rural orientation. Moreover, out of the institutional credit to agriculture sector at 39 per cent of total credit, the share of commercial banks was negligible at one per cent, with the balance being met by the co-operatives. As a result, the banking needs of the rural areas in general and the backward regions in particular, were not adequately taken care of by the commercial banks and particularly the credit needs of rural sector of the economy such as agriculture, small-scale industry and allied services remained virtually neglected. The Group, therefore, recommended the adoption of an ‘Area Approach’ to evolve plans and programmes for the development of an appropriate banking and credit structure in the rural areas. The Group also observed that the central idea was to assign, depending upon their area of operations and locations, to commercial banks, particular districts in an area where they should act as pace-setters providing integrated banking facilities and thus all the districts in the country needed to be covered. The district was identified as the unit under the Area Approach because the co-operative structure was organised in relation to a district and most statistical and other data were available at the district level.

The Reserve Bank appointed a Committee of Bankers on Branch Expansion Programme of public sector banks (Chairman: Shri F. K. F. Nariman), which submitted its report on November 15, 1969, endorsing the area approach. It further recommended that in order to enable the public sector banks to discharge their social responsibilities, each bank should concentrate on under banked districts where it should function as a ‘Lead Bank’, as well as open bank branches to fulfil the target of providing every place designated as a town with a bank branch by the end of 1970.

Thus, pursuant to the recommendations of the Gadgil Study Group and Nariman Committee suggesting adoption of ‘area approach’ in evolving credit plans and programmes for development of banking and the credit structure, the Lead Bank Scheme was introduced by the Reserve Bank in December, 1969. The scheme envisaged allotment of districts to banks to enable them to assume leadership in bringing about banking developments in the respective districts.

Development in the districts was sought to be achieved by making banks the key instruments for local deployment of credit, entrusting them with the responsibility of locating growth centres, mobilising deposits, identifying credit gaps and evolving a coordinated programme for credit deployment in each district, in concert with other banks and credit agencies. In order to enable the banks to assume ‘leadership’ in an effective and systematic manner, the various districts, except the metropolitan cities of Mumbai, Delhi, Kolkata and Chennai and certain Union Territories in the country were allotted among the public / select private sector banks and each such bank was designated as the Lead Bank for the district concerned. The Lead Bank was also expected to work for expansion of branch banking facilities and assume a major role in the development of banking and credit in the allocated districts.

The specific functions of the Lead Bank in a district are as follows:

(i) Surveying the resources and potential for banking development in its district;

(ii) Surveying the number of industrial and commercial units and other establishments, and farms, which do not have banking accounts or depend mainly on money-lenders, and increasing their own resources through the creation of surpluses from additional production financed from the banking system;

(iii) Examining the facilities for marketing of agricultural produce and industrial production, storage and warehousing space, and linking of credit with marketing in the district;

(iv) Surveying the facilities for stocking of fertilisers and other agricultural inputs and repairing and servicing of equipments;

(v) Recruiting and training staff, for offering advice to small borrowers and farmers, in the priority sectors, which may be covered by the proposed credit insurance schemes and for follow-up and inspection of end-use of loans.


(vi) Assisting other primary lending agencies; and

(vii) Maintaining contact and liaison with Government and quasi-Government agencies.

The Lead Bank Officer was given the responsibility to prepare the district credit plan/ annual action plan (DCP/AAP) for the district after taking into account the annual estimated commitments of individual financial institutions. The plan document indicated a sectoral, scheme-wise and institution group-wise break-up of the total credit outlays, as also the estimated expectation of Government departments by way of specific action on infrastructure development, supply of inputs, etc. The DCPs/AAPs were to be prepared in consonance with the objectives of the National Plan, viz. removal of unemployment and underemployment and bringing about an appreciable rise in the standard of living of the poorer sections of the population through provision of credit to meet their basic needs. Consequently, the main objectives of the banks’ loans envisaged loans for labour-intensive schemes which generated employment, increased productivity of land and other allied sectors so as to reduce underemployment and increase income levels, besides granting loans to the weaker sections of the population for productive purposes as also meeting in part their consumption needs. The DCP/AAP was to be based on the existing pattern of economic activities and potential for development; ensuing five-year plan targets and annual budgetary provisions; performance of financing agencies under the previous plan and their potential in respect of availability of funds as well as man power, in addition to likely demand for credit in respect of specific projects, different sectors and blocks in the district. The allocations of the credit plan amongst the commercial banks, co-operative institutions and other financial agencies operating in the district were to be done at a special meeting of the District Consultative Committee (DCC).

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