Unit-II

Lecture No. 9
Lead bank scheme, RRBs, Scale of finance and unit cost.
Lead Bank scheme

The Lead Bank Scheme, introduced in year 1969, envisages assignment of lead roles to
individual banks for the districts allotted to them. The lead bank acts as a leader for coordinating
the efforts of all credit institutions in the allotted districts to increase the flow of credit to
agriculture, MSE and other economic activities with the district being the basic unit in terms of
geographical area. SBI has been assigned lead bank responsibility in 268 districts.

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.

Objectives of the Lead Bank Scheme

Objectives of the Lead Bank Scheme are explained in the following table:
Importance/
Objectives of the Lead Bank Scheme Means of Achievement
Advantages
Important to extend
Identify unbanked and underbanked Economic survey and
banking facilities to all
regions in districts identification of regions
regions

Evaluate physiographic, agro-climatic, Necessary to understand

Conducting an economic
and socio-economic conditions through the conditions and needs
survey
economic survey of the region

Remove regional imbalances through Essential to promote Appropriate credit

appropriate credit deployment balanced development deployment

Establishment of banking
Extend banking facilities to unbanked Important to ensure
facilities in unbanked
areas financial inclusion
areas

Development and
Address credit gaps in various sectors Necessary to address the
implementation of a
through a credit plan needs of various sectors
credit plan

Identify economically viable and Essential to ensure Identification and

technically feasible schemes effective use of credit evaluation of schemes
 Implement structural and procedural Necessary to improve Introduction of structural
changes in the banking sector banking operations and procedural changes

Promotion of cooperation
Foster cooperation among financial and Essential for coordinated
between financial and
non-financial institutions development
non-financial institutions

Promote overall development of the Essential for overall Implementation of

districts growth and progress development programs

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.

a. It ensures better utilization of banking resources and promotes inclusive growth.

b. The scheme helps in channelizing credit to priority sectors and underserved areas.
c. It facilitates identifying and resolving regional disparities in access to banking facilities
and credit.
d. Through the Lead Bank Scheme, comprehensive banking services can be extended to all
sections of society, including marginalized and rural populations.
 e. It encourages the development of productive sectors by ensuring adequate credit flow.
f. The scheme fosters financial inclusion by promoting banking outreach in remote and
unbanked areas.
g. It effectively implements government programs and schemes by coordinating financial
institutions' efforts.
h. The Lead Bank Scheme supports the economic development of regions and contributes to
overall national development.
i. 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:
1. 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.
2. These delays can impact the timely delivery of credit to borrowers.
3. Problems have been encountered in the allotment of districts under the Lead Bank Scheme.
4. Some districts have been excluded or designated incorrectly, leading to disparities in
banking facilities and credit access.
5. The concept of 'Lead Bank' can be confusing, especially regarding opening bank branches.
6. This ambiguity in scope and objectives can cause inefficiencies and implementation
challenges.
7. 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.
8. This can result in disparities in credit allocation and the implementation of development
programs.
9. The significance of cooperatives as a source of institutional finance has been overlooked
by the Lead Bank Scheme.
10. 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.
Lead Districts allotted to SBI in Madhya Pradesh:

1. Ashoknagar 2. Chhatarpur 3. Damoh 4. Guna 5. Harda

6. Katni 7. Neemuch 8. Niwari 9. Panna 10.
Sheopur Kala 11. Shivpuri 12. Tikamgarh 13. Umaria 14. Vidisha

Regional Rural Bank (RRB’s)

The Regional Rural Banks, or RRBs, are the third layer of commercial banking
organization, after commercial and cooperative banks. The RRBs were established as per the
recommendations of the Narasimham Committee to cater to the rural credit needs of the farming
and other rural communities.
The main aim of the RRBs is to provide credit and other banking facilities to the small and
marginal farmers, agricultural laborers, and small artisans who form an evident part of the
development of the rural economy. The RRBs are a new form of commercial banks, backed by
commercially strong banks to serve within a limited local area. The Regional Rural Banks (RRBs)
were established in 1975 under the provisions of the Ordinance promulgated on 26th September,
1975 and Regional Rural Banks Act, 1976 with a view to developing the rural economy by
providing, for the purpose of development of agriculture, trade, commerce, industry and other
productive activities in the rural areas, credit and other facilities, particularly to small and marginal
farmers, agricultural labourers, artisans and small entrepreneurs, and for matters connected
therewith and incidental thereto. The Syndicate Bank became the first commercial bank to sponsor
the Prathama Grameen Bank RRB.

Ownership
The equity of the Regional Rural Banks is held by the stakeholders in a fixed proportion. This
proportion is 50:35:15, distributed as:
Central Government – 50%
Sponsor Bank – 35%
State Government – 15%

Features
i. Following are the characteristic features of the Regional Rural Banks in India:
ii. The RRBs possess complete knowledge of the problems faced by the people in the rural
regions as they operate in a familiar environment
iii. They show professionalism in mobilizing the finances just like that of a commercial bank
iv. RRBs provide banking as well as credit facilities to the marginal farmers, small
entrepreneurs, artisans, laborers, etc. in rural areas
v. They fulfill the priority sector lending norms as applicable on the commercial banks
vi. They are required to work within their prescribed local limits only

vii. Objectives

viii. The Regional Rural Banks in India are entrusted with the following functions and/ or
objectives as described below:
ix. Opening branches of banks in the rural areas
x. Providing loans for the development of the agricultural sector to small farmers, agricultural
laborers, small entrepreneurs, etc.
xi. Generating employment opportunities
xii. Encouraging savings among the rural people, accepting deposits, and using the funds for
productive purposes
xiii. Protecting common people from money lenders’ exploitation
xiv. Reducing the cost of providing loans in rural areas

Amalgamation of RRBs: As we know, the merging of two or more banks together is known as
amalgamation. In the early 1990s, more than 190 RRBs were in existence. The authorities
amalgamated these banks in a phased manner.
Accordingly, in January 2013, 25 RRBs were merged into 10 banks. Thus reducing the
number from 190 to 67 in phase 1 itself. They were further reduced to 56 banks in March 2016 in
phase 2. In the third phase, the RRBs were merged and the number reduced to 43. Hence, currently,
there are 43 RRBs operating in the country.

Regulation of the RRBs in India

The Reserve Bank of India (RBI) and the NABARD (National Bank for Agricultural and
Rural Development) are the two prime regulators of the RRBs in India.

RBI: The RBI Act of 1934 and the Banking Regulation Act 1949 are the two main regulating
statutes for commercial banks in India.

NABARD: It is the chief body set up for the regulation of the rural banking sector in India. It was
established on 12th July 1982 with an objective to improve the flow of funds from the urban areas
to semi-urban and rural parts of the country. NABARD is mainly responsible for monitoring,
planning activities, and policymaking of the credit system of the rural banks. It also helps rural
banks in their development and supervises such activities on a regular basis.

Functions of the RRBs in India

As the Regional Rural Bank is a scheduled commercial bank, it is primarily responsible for
accepting deposits and disbursing loans. The important functions of the RRBs are as below:

1. Accepting deposits from members in current or savings accounts. They can also be made
in fixed or recurring deposits.
2. Extending loans to the small and marginal farmers, craftsmen and artisans, medium and
small scale enterprises, housing, local traders, renewable energy, etc. that need
development and financial assistance.
3. Disbursing wages is an important RRB function under the Mahatma Gandhi National
Rural Employment Guarantee Act (MGNREGA) and the Pradhan Mantri Gram Sadak
Yojana (PMGSY). It also disburses pensions under the poverty alleviation schemes.

Secondary functions
i. Providing agency services and general utility services to the customers
ii. Assisting in foreign exchange, money wire transfer, bill payments, etc
iii. Utility services like the ATM, issuance of debit cards, locker facilities, UPI, etc.
Difference between RRBs & Commercial Banks
Let us learn about some of the major differences between Regional Rural Banks and Commercial
Banks with respect to purpose, scope, stake holding, etc. discussed as below:
RRB Points of Difference Commercial Banks
Development of individuals in the Earn profits out of deposits,
rural and backward areas by way of loan extending, and other
Purpose
providing credit and banking activities.
facilities.
Limited to agriculture finance, small They not only provide
sector loans, craftsmen, artisans, and agriculture finance but also
Scope
other small sectors. offer loans for housing,
vehicles, letters of credit, etc.
Present in rural and semi-urban areas Present all over the country
only Area of operation including rural, semi-urban,
and urban.
Accepting deposits and granting Apart from lending and
loans to needy individuals in rural borrowing, these banks also
and semi-urban areas. carry out stock broking,
Focus
merchant banking, venture
capital financing, asset
management, etc.
Stakeholders include the government Stakeholders are the public,
of India, the state government, and Stake holding central government, etc.
commercial banks as sponsors.

Scale of Finance (SOF)

Scale of finance is the finance required for raising a crop per unit cultivated area, i.e. acre or hectare. The scale of
finance for different crops in a district is decided every year by District Level Technical Committee (DLTC). The District
Central Co-operative Bank in the District acts as the Convener of this committee and all major banks in the District, State
Agriculture Department officials, leading farmers, Lead District Managers, etc., act as its members. This committee which
is a sub-committee of the DCC meets once in a year and fixes the scale of finance for each crop raised in the District.