One of the main objectives of nationalization of banks was to extend credit facilities to the

rural poor and to provide credit to the small borrowers in the priority sectors like agriculture,
small scale industry, road and water transport, retail trade and small business. The necessity
of meeting specific credit requirements of the weaker sections, consumption loans to rural
people below the poverty line should be given priority.
It should also include financing and distribution of inputs for agriculture and allied sectors so
that uplift of the weaker sections in the economy can be improved.

Service area approach

The concept of service area approach relates to providing rural credit to accomplish the task
of providing credit to millions of farmers, particularly small farmers, rural artisans, weaker
sections, the multi-agency approach was felt necessary. The provision of affordable financial
services to the rural population has been a prime component of development strategy for
several decades. Governments, development agencies, and other donors have supported
various agri/ rural financial institutions to accelerate the rate of growth and alleviate poverty,
especially in the rural areas.
Financing development in rural areas, where majority of the poor in developing countries
lives, is one of the most pressing concerns of governments.
The rural sector in developing world not only generates employment, income, and foreign
exchange from agriculture and off-farm rural activities, but also provides markets, labor &
raw material inputs to manufacturing and other urban industries. With the inclusion of several
sectors the concept
Priority sector lost its flavor. Priority sector credit today lacks focus and rationality. Anti-
poverty programmes provisions of finical services to the pool and underprivileged got top
priority. Further efforts are required to address the credit needs of the poor like giving
assistance by housing loans, educational loans, software including retail trade, export credit,
food and agro processing etc. by enhancing support to trading community.

Role of Lead bank scheme

The lead bank scheme was introduced by the Reserve Bank of India toward the end of 1969
on the recommendation of the Nariman Committee with the objective of enabling the
commercial banks to assume the role of leadership for the development of banking and credit
facilities throughout the
country on the basis of area approach. A lead bank is assigned the role of a catalytic agent of
economic development through the expansion of bank branches and diversification of credit
facilities in the district allotted to it.
The main objectives of Lead Bank Scheme are:
Appreciable rise in the standard of living for the poorest of the poor.
Provision of some of the basic needs of the people who belong to poor sections of the
society.
To open branches in all important localities in the lead district.
To extend maximum credit facilities for development in the district.
The Lead bank Scheme was not fully able to achieve its targets due to shift in policies,
complexities in operations and issues shifting to the Financial Inclusion. Lack of coordination
between district planning authorities and banking institutions operating in a district on one
side and between NABARD and the Lead Bank on the other is the prominent reason which
required attention. Duplication of efforts in credit plan preparation should be avoided by
empowering the plan team at the district level appropriately.
It is a failure but the recommendation of Usha Thorat Committee had supported the lead bank
scheme.
The review on LBS has been made with a focus on financial inclusion and in view of the
recent developments in the banking sector. The scheme has been found useful to promote
financial inclusion in the country. Hence it should be continued” – Usha Thorat May 22,
2009.

Procedure for Service Area Approach

The District SGSY Committee set up under the Scheme has been authorized to reallocate
the villages, which are either not covered by any bank branch or where the concerned branch
is not able to perform for any reason whatsoever. The District SGSY Committee’s decision
on reallocation would be placed before DCC for its consideration and further necessary
action.
The Service Area branches may be grouped block wise without disturbing their Service
Area identities or their obligation to prepare Village Credit Plans/ Service Area Plans so that
borrowers will have the flexibility to approach other branches

The primary responsibility for financing borrowers within the Service Area will be that of
the concerned Service Area branch.

Borrowers will first approach their Service Area branch for credit facilities and in the event
of the concerned Service Area branch not being in a position to finance them, it will be
incumbent on it to give a ‘No Dues Certificate’ to the concerned borrower, who will then be
free to approach any other branch in the block for credit support.

If the Service Area branches do not issue ‘No Dues Certificate’ within 15 days from the
date of receipt of the application, the borrower will be free to approach any other branch in
the block for his credit requirements without production of ‘No Dues Certificate’ from the
concerned Service Area branch (vide circular RPCD. No. BC.117/08.01.00/95-96 dated April
2, 1996 read with circular RPCD. No. BC. 150/08.01.00-93/94 dated 24 May 1994).

Banks should follow these Service Area Approach guidelines scrupulously.

Particularly for augmenting rural credit under this scheme each village in the country is
allotted to a specific bank called service area bank introduced in April 1989, in order to bring
about an orderly and planned development of rural and semi-urban areas of the country was
extended to all Indian scheduled commercial banks including RRB. Service area approach is
a modification of the Lead bank scheme.

OBJECTIVES OF THE LEAD BANK SCHEME

Under the scheme, Lead Banks shared the responsibility of surveying and developing the banking
potential of all the districts. Lead Banks were expected to assume the role of catalytic agents of
economic development in their respected lead districts. They were expected to serve as leaders to
bring about a co-ordination of co-operative banks, commercial banks and other financial institutions
in their respective districts in the interest of district development. This is a very vital role in which the
banks are required to associate and align their operations with planned regional development. On the
basis of the survey, the lead banks were expected to estimate the deposit potential and fill the credit
gaps to improve bank advances in rural areas, especially to priority sectors and weaker sections.

The close involvement of the Lead Bank with a particular area will not only result in deposit
mobilisation but also in the expansion of finance to agriculture and small industries.
The following important benefits were expected to flow from the scheme.

(i) The whole country would be served by a well-knit system of commercial and cooperative banking.
(ii) Branch expansion, supervision and guidance would become effective.
(iii) A dynamic relationship between commercial banks, co-operative credit institutions and
government authorities at the district level would evolve.
(iv) Major constraints impeding the development of the districts economy would be identified and the
Lead Bank would induce the appropriate agencies to remedial action3.

FUNCTIONS OF THE LEAD BANK

In order to achieve the above-mentioned objectives, the Reserve Bank of India spelt out the following
functions to be performed by the Lead Bank4.
 To survey the resources and potential for banking development in its district.
 To survey the number of industrial and commercial units, farms and other establishments
which do not have bank accounts, or which depend primarily on money lenders, increasing
the resources of such units by additional production through help from the banking system.
 To examine the facilities for marketing of agricultural produce and industrial production,
storage and warehousing and the linking of credit with marketing in the district.
 To study the facilities for stocking of fertilisers and other agricultural inputs and repairing and
servicing of equipments.
 To recruit and train staff for offering advice to small borrowers and farmers in the priority
sectors and for the follow-up and inspection of the end use of loans.
 To assist other primary lending agencies.
 To maintain contact and liaison with Government and Quasi-government agencies.

It is not difficult to discern that objectives of the Lead Bank Scheme coincide with those of
nationalisation of Banks. In fact, it is not far-fetched to state that the scheme was expected to be the
Main Vehicle for achieving the objectives of bank nationalisation.

Thus the responsibility for the overall development of the district has been entrusted to the lead banks.
In other words, the role of the lead bank is three dimensional.

(i) a commercial credit institution for mobilising resources and advancing loans.
(ii) a planning agency, for finding out the needs and problems and solving them by setting up targets.
(iii) a development bank, for working as a catalytic agent for the development of backward and the
under and undeveloped areas of the districts.

The Lead Bank will be expected to assume the major role in the development of banking and credit in
the allocated districts. At the same time, there is clearly no intention that the Lead Bank should have a
monopoly of banking business in a district. The bank assigned the lead role, is thus expected to act as
the consortium lead and after identifying, through survey, areas requiring branch expansion and areas
suffering from credit gap. It should invoke the co-operation of other banks operating in the district, for
opening branches as well as for meeting credit needs7. Hence, from the above view expressed by the
study group appointed by Reserve Bank of India to report on the working of the lead bank scheme in
Gujarat and Maharashtra, it is quite clear that the Lead bank is not expected to play a dominant role as
far as banking business in the district is concerned.

ADMINISTRATION OF THE SCHEME

1. Allocation of Districts

All the districts of the country have been allocated to the banks (public sector and to a few private
sector) except the undemoted districts to assume lead responsibility. The Bank which has been
assigned the lead responsibility is called Lead Bank of the district and such district for the Lead Bank
shall be termed as lead district. The distribution of district was mainly done on the basis of certain
criteria like size and resources of bank, geographical contiguity, ability to undertake lead
responsibilities, with re-organisation of the districts and nationalisation of six more banks in 1980, the
Lead bank responsibilities were readjusted from time to time. Allocation has been made in such a way
that in each state there would be more than one Lead Bank and to the extent possible, for each bank to
operate in more than one state.

2. Organizational Setup

Lead Bank Scheme involves the participation of Lead bank, other commercial banks (Non lead banks)
Regional Rural Banks, Co-operative banks, other financial institutions like state financial corporation,
Khadi and village industry board, Reserve Bank of India. NABARD and developmental agencies of
the Government. The organizational set up at main institutions which participate in the
implementation of Lead Bank Scheme is as under for the effective implementation of Lead Bank
Scheme, the banks which have been assigned the lead responsibility, posted separate officer incharge
who is called as Lead bank officer. In some of the banks, LBO is designated as Lead district manager.

LEAD BANK OFFICERS - DUTIES. FUNCTIONS AND RESPONSIBILITIES

Lead Bank Officer is expected to perform as the man on the spot for carrying out all the
responsibilities entrusted to the Bank under the Lead bank scheme. He should liaise not only with
other branches of his own bank but also with the co-ordinating branches of other commercial banks
and co-operative and land development banks functioning in the district.
He is expected to liaise with Government officials in the districts and blocks as well. While
discharging his duties, the Lead bank officer should take into account the spirit of the Lead Ban
Scheme which envisages integration of the activities of different agencies engaged in the
developmental task of the district viz., commercial banks, co-operative banks, land development
banks, Governmental and Semi-Governmental agencies, etc.

HIS MAJOR FUNCTIONS. DUTIES AND RESPONSIBILITIES

(a) To convene meetings of DCC, DLRC, standing committee, non-lead bank and special DCC,
etc, as per schedule or requirements. He will prepare background material and compilation of
data required for the meetings. To all the members of the house, the agenda along with
background papers and compiled data and notice of the meeting should be sent sufficiently in
advance, say 15 days. He will record the minutes of the meeting. The proceedings should
bring out the discussions and decisions arrived at clearly. The items not advised beforehand
but raised in the meeting should be separately in the proceedings. The agencies responsible
for taking further action on the decisions together with the time schedule for such action
should be indicated in the proceedings. The concerned agencies should provide necessary
feedback regarding the action taken on the decision to DCC. LBO should follow-up issues
requiring action by banks and other financial agencies. It should be ensured by the LBO that
the financial institutions and government departments furnish him beforehand suitable
background notes on the subjects proposed for discussion at DCC.

(b) He will collect the data of district profile development programmes of the district, additional
infrastructural support during the plan period, assess the potential of various technically
feasible and economically viable activities in the district, demand of the activities, resource
position and staff availability with the banks to prepare credit plans and furnishing various
annexures in the credit plan document. He will also place in DCC, the details of technical
feasibility and economic viability of new activities to be introduced in the district.
(c) He is the Kingpin in the process of DCP and AAP formulation. He is expected to complete
the task with help of sub-group of the DCC and involvement of the Government departments
and financial institutions in the district.

(d) He will effectively monitor the implementation of credit plan in the schedules prescribed by
the Reserve Bank of India on a quarterly basis for this purpose, he will be required to collect
data not only from the branches of his bank but also from the district co-ordinators of other
financial institutions/banks. This data will be aggregated and placed in DCC meetings. One
copy of aggregated data will be sent to his controlling office, SLBC and Regional Office RBI
within the prescribed schedule.

(e) He will keep close contact with the district authorities and other government and semi
government agencies with the prime function of co-ordinating the banks developmental
functions in line with the district development plans drawn up by the district authorities. In
general, he will be conscious of his responsibilities and endeavour to see that lead district
credit plans are implemented by all banks, and assistance of development agencies may be
sought for wherever it is necessary.

(f) The Lead Bank Officer will supervise the day-to-day implementation of the district credit
plan and generally keep in touch with other participating agencies to ensure that the annual
component of the district plan is scrupulously implemented. He will also act effectively to
ensure that problems, if any, in the implementation of the credit plan are resolved by tapping
up the matter with the concerned government or other agencies first at district level. If not
resolved at district level then at the State level/Regional level/Divisional/Regional Manager to
keep informed about his activities.

(g) Periodically the credit plans will have to be revised and up-dated. This task will be borne by
the Lead Bank Officer who for this purpose, constantly keeps watch on all the new schemes
which are being drawn up by different agencies, as well as new directives of the Reserve
Bank of India and Government of India.

(h) The Reserve Bank of India expects that the Lead Bank will conduct evaluation studies from
time to time on the progress in implementation of credit plan. The Lead Bank officers should
take up this work periodically and submit his report to head office, who would finalise it
before submitting to the Reserve bank of India and Ministry of Finance, Government of India.

(i) LBO should work with close rapport and have frequent consultations with the focal point
officer of the state government.

(j) With the introduction of service area approach, consolidation of plans and monitoring system
shall be done through computer agency. LBO shall have to adjust the system in such a way
that overlapping’s are eradicated.