Lead Bank Scheme - Objectives, Functions, Advantages, Disadvantages And More
The Reserve Bank of India launched the Lead Bank Scheme. The objective was to ensure financial inclusion and provide banking services. The scheme aimed to serve all sections of society. The Lead Bank Scheme aimed to establish a lead bank in every district of India. The lead bank would coordinate with other banks and financial institutions in the area. The purpose was to ensure effective and efficient utilization of banking facilities. The scheme also aimed to increase credit flow to priority sectors. The scheme aimed to promote rural development.
The Lead Bank Scheme is one of the most important topics for the UPSC IAS exam. It covers a significant part of the Indian Economy in the General Studies Paper 3 syllabus and events in the UPSC Prelims General Studies Paper 1 syllabus.
This article provides a comprehensive overview of the Objectives, Advantages, Disadvantages, Usha Thorat Committee on Lead Bank Scheme and other important facts for the UPSC exam.
What is a LEAD BANK SCHEME?
The Lead Bank Scheme was launched in 1969. It's designed to provide banking and credit to rural areas. The scheme follows the 'service area approach.' A specific bank services each area. The Gadgil Study Group and Banker's Committee suggested the scheme. They found that rural regions needed more banking services. This was due to the need for more commercial banks.
Read the linked article for the UPSC Exam to learn about the Types of Banks in India and their Regulatory Functions!
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Objectives of the Lead Bank Scheme
Objectives of the Lead Bank Scheme are explained in the following table:
|
Objectives of the Lead Bank Scheme |
Importance/ Advantages |
Means of Achievement |
|
Identify unbanked and underbanked regions in districts |
Important to extend banking facilities to all regions |
Economic survey and identification of regions |
|
Evaluate physiographic, agro-climatic, and socio-economic conditions through economic survey |
Necessary to understand the conditions and needs of the region |
Conducting an economic survey |
|
Remove regional imbalances through appropriate credit deployment |
Essential to promote balanced development |
Appropriate credit deployment |
|
Extend banking facilities to unbanked areas |
Important to ensure financial inclusion |
Establishment of banking facilities in unbanked areas |
|
Address credit gaps in various sectors through a credit plan |
Necessary to address the needs of various sectors |
Development and implementation of a credit plan |
|
Identify economically viable and technically feasible schemes |
Essential to ensure effective use of credit |
Identification and evaluation of schemes |
|
Implement structural and procedural changes in the banking sector |
Necessary to improve banking operations |
Introduction of structural and procedural changes |
|
Foster cooperation among financial and non-financial institutions |
Essential for coordinated development |
Promotion of cooperation between financial and non-financial institutions |
|
Promote overall development of the districts |
Essential for overall growth and progress |
Implementation of development programs |
Read the linked article for the UPSC Exam to learn about Non Banking Financial Institutions - Features, Types, and Roles
Functions of Lead Bank Scheme
- Coordination: The Lead Bank Scheme facilitates coordination among banks.
- Credit Planning: It involves preparing and implementing District Credit Plans to ensure systematic and equitable credit allocation.
- Priority Sector Lending: The scheme emphasizes the flow of credit to priority sectors, such as agriculture, small-scale industries, and weaker sections of society.
- Financial Inclusion: Lead banks are crucial in promoting financial inclusion by extending banking services to unbanked and underserved areas.
- Credit Monitoring: They monitor the flow of credit and evaluate the progress of various credit-linked government schemes and programs.
- Stakeholder Engagement: Lead banks engage with various stakeholders, including government agencies, local bodies, and self-help groups, to ensure the effective implementation of development programs.
- Training and Capacity Building: They conduct training programs to enhance bank officials' and staff members' skills and knowledge.
- Evaluation and Reporting: Lead banks evaluate the impact of credit disbursal and submit periodic reports to the Reserve Bank of India (RBI) and other relevant authorities.
- Dispute Resolution: They help resolve disputes related to credit and financial services, promoting a conducive business environment.
- Promoting Financial Literacy: Lead banks undertake initiatives to promote financial literacy and educate the public about various banking products and services.
Advantages of Lead Bank Scheme
- The Lead Bank Scheme promotes coordination and cooperation among banks and financial institutions.
- It ensures better utilization of banking resources and promotes inclusive growth.
- The scheme helps in channelizing credit to priority sectors and underserved areas.
- It facilitates identifying and resolving regional disparities in access to banking facilities and credit.
- Through the Lead Bank Scheme, comprehensive banking services can be extended to all sections of society, including marginalized and rural populations.
- It encourages the development of productive sectors by ensuring adequate credit flow.
- The scheme fosters financial inclusion by promoting banking outreach in remote and unbanked areas.
- It effectively implements government programs and schemes by coordinating financial institutions' efforts.
- The Lead Bank Scheme supports the economic development of regions and contributes to overall national development.
- It helps in monitoring and evaluating the progress of credit disbursement and development programs at the district level.
Disadvantages/ Problems of the Lead Bank Scheme
Disadvantages and problems associated with Lead Bank Scheme are:
- The effectiveness of the Lead Bank Scheme relies on coordination and cooperation among banks and financial institutions.
- However, there are often delays and inefficiencies due to coordination issues.
- These delays can impact the timely delivery of credit to borrowers.
- Problems have been encountered in the allotment of districts under the Lead Bank Scheme.
- Some districts have been excluded or designated incorrectly, leading to disparities in banking facilities and credit access.
- The concept of 'Lead Bank' can be confusing, especially regarding opening bank branches.
- This ambiguity in scope and objectives can cause inefficiencies and implementation challenges.
- The preparation and implementation of District Credit Plans, mandated by the Lead Bank Scheme, can take time and effort to achieve uniformly across all districts.
- This can result in disparities in credit allocation and the implementation of development programs.
- The significance of cooperatives as a source of institutional finance has been overlooked by the Lead Bank Scheme.
- This oversight can lead to inefficiencies, disparities in credit allocation, and variations in the implementation of development programs, particularly in rural areas where cooperatives are more prevalent.
Read the linked article for the UPSC Exam to learn about Development banks in India.
Usha Thorat Committee on Lead Bank Scheme
The Indian government formed a high-power committee. The committee was led by former RBI Deputy Governor Usha Thorat. The committee's task was to suggest reforms for the Lead Bank Scheme. The reforms aimed to address challenges in the banking sector. These challenges include increasing privatization and autonomy.
The panel recommended the following reforms:
|
Recommendations of Usha Thorat Committee on LBS |
Details |
Advantages |
Disadvantages |
|
Scope of the scheme needs to be enhanced |
The Lead Bank Scheme should be extended to cover all areas and sectors. Financial inclusion should be the goal. It should not be limited to government-sponsored credit schemes. |
Provides financial access to all areas and sectors that require it. |
It may lead to confusion in implementation and difficulty in identifying priority areas. |
|
Focus on facilitating financial inclusion rather than just reviewing government-sponsored credit schemes |
The Lead Bank Scheme should prioritize providing financial services. The focus should be on the unbanked and underbanked population. This is more important than just reviewing government credit schemes. |
Improves the access of financial services to the unbanked and underbanked population. |
It may lead to neglect of government credit schemes. |
|
LBS should be continued to accelerate financial inclusion in unbanked areas |
The Lead Bank Scheme should persist in its objective. The primary goal should remain providing financial services. The emphasis should be on unbanked and underbanked areas of the country. |
Provides access to banking services in underdeveloped and remote areas. |
It may not be financially viable for banks to operate in remote areas. |
|
Role of private sector banks in LBS action plans, particularly in areas of their presence, must be extended |
Private sector banks should be included in the LBS action plans, especially in areas where they are present. |
Provides additional resources and expertise to the LBS action plans. |
Private sector banks may not be interested in participating in LBS action plans. |
|
Enhancement of business correspondent model to make banking services available in all villages with population above 2,000 |
The business correspondent model should be enhanced to provide banking services in all villages with a population above 2,000. |
Provides banking services in remote areas through cost-effective means. |
Quality of services provided by business correspondents may not be up to the mark. |
|
Relaxation in KYC norms for small value accounts |
The KYC norms for small value accounts should be relaxed to make it easier for people to access banking services. |
Increases the number of people who can access banking services. |
May lead to misuse of relaxed KYC norms. |
Read the linked article for the UPSC Exam to learn about Nationalization of Banks in India
Conclusion
The Lead Bank Scheme was instrumental in promoting financial inclusion and rural development in India. However, the scheme faced several challenges. Inadequate infrastructure was a significant challenge. Lack of coordination among stakeholders was another obstacle.
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