What Is The Lead Bank Scheme in India?

The Lead Bank Scheme is a scheme which aims at  providing adequate banking and credit in rural areas through an ‘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 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 sector 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 objective was to identify those regions which  unbanked and underbanked  in districts and also to evaluate their physiographic, agro climatic end Socio-economic conditions through 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 various sector which need to be address and a credit plan is needed.
  • It was important to identify economically viable and technically feasible schemes.
  • The structural and procedural changes in banking sector were needed.
  • Development of co-operation amongst financial and non-financial institutions, in overall development of the districts were also neede.
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Usha Thorat Committee on LBS

A high- power committee was constituted by Government Of India and it was headed by the 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. 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 favoured the further continuance and revitalization of the scheme for the sake of the financial inclusion in the country.

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