What Is The Lead Bank Scheme in India?_00.1
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What Is The Lead Bank Scheme in India?

The Lead Bank Scheme is a generalized scheme aiming at providing banking in rural areas with one bank assigned for one area. What is the  Lead Bank Scheme in India? What are its objectives? What is the role of the Usha Thorat Committee in LBS? we will be answering all these questions in detail so keep reading.

What Is The Lead Bank Scheme in India?

The Lead Bank Scheme is a scheme that aims at providing adequate banking and credit in rural areas through a ‘service area approach’, with one bank assigned for one area. It was introduced in 1969 in view of this aim.
On the recommendation of the Gadgil Study Group and Banker’s Committee, the Scheme was introduced by RBI. As per the studies by the committees, it was found that the rural areas were not able to enjoy the benefits of banking.  Also, that the commercial banks did not have an adequate presence in rural areas and also lacked the required rural orientation which was hindering the growth of rural areas.
To address this issue it was decided that some areas or sectors will be given to the banks whether private or public in which that bank had to play a lead role in providing financial services to the people, making them aware about   

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Objectives of The Lead Bank Scheme:

Given below are some of the objectives which were aimed to achieve with the help of this scheme:

  • One of the objectives was to identify those regions which unbanked and underbanked in districts and also to evaluate their physiographic, agro-climatic end Socio-economic conditions through the economic survey.
  • Another objective was to help in removing regional imbalances through appropriate credit deployment.
  • The main objective was to extend banking facilities to unbanked areas
  • It was observed in the studies by the committee that there are certain credit gaps in the various sector that need to be addressed and a credit plan is needed.
  • It was important to identify economically viable and technically feasible schemes.
  • Structural and procedural changes in the banking sector were needed.
  • Development of co-operation amongst financial and non-financial institutions, in the overall development of the districts, were also needed.
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Usha Thorat Committee on LBS

A high-power committee was constituted by the Government Of India and it was headed by Usha Thorat, former Deputy Governor of RBI,  in order to suggest some reforms in the LBS. The main objective of the panel was to recommend steps to revitalize the LBS, given the challenges facing the banking sector, especially in an era of increasing privatization and autonomy. The following recommendation were given by this panel:

  • The scope of the scheme needs to be enhanced.
  • A sharp focus on facilitating financial inclusion rather than going for a mere review of the government-sponsored credit schemes was suggested.
  • It was suggested by the panel that LBS should be continued to accelerate financial inclusion in the unbanked areas of the country.
  • The role of Private sector banks in LBS action plans, particularly in areas of their presence must be extended.
  • Enhancement of the business correspondent model was suggested in order to make banking services available in all villages having a population of above 2,000, and relaxation in KYC (know your customer) norms for small value accounts.

From the above-mentioned points, we can see that the main objective of the lead bank scheme (LBS) was financial inclusion. The Usha Thorat committee highly favored the further continuance and revitalization of the scheme for the sake of financial inclusion in the country.

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