Issues with Lead Bank Scheme

What went wrong with the Scheme?

The scheme could not fully achieve its targets due to

1. Shift in policies, complexities in operations and issues shifting to the Financial Inclusion.
2. 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.
3. Duplication of efforts in credit plan preparation.

So, over the period the system of lead bank scheme and associated district-level coordination committees of bankers has apparently become inactive.

In last few years, there was a strong need felt to revitalize the scheme with clear guidelines on respecting the bankers’ commercial judgments even as they fulfill their sectoral targets. Various committees like Block Level Bankers Committee, District Coordination Committee and District Review Committee seldom function with all seriousness.

Usha Thorat Committee:

In 2009, Government of India constituted a High-Power Committee headed by Mrs Usha Thorat, Deputy Governor of the RBI, to suggest reforms in the LBS.

The task of this penal was recommend how to revitalize the LBS, given the challenges facing the banking sector, especially in an era of increasing privatization and autonomy.

1. The committee recommended the enhancing the scope of the scheme and suggests a sharper focus on facilitating financial inclusion rather than a mere review of the government sponsored credit schemes.
2. The committee said that most forums to monitor the implementation of LBS are being used for routine review of the government-sponsored schemes, credit deposit ratio, recovery performance, among others.
3. Lending under such schemes constitute 0.4 per cent of the total priority sector lending. As such, the State Level Bankers’ Committee (SLBC) / District Consultative Committee (DCC) could utilize its time to discuss specific issues inhibiting and enabling financial inclusion rather than those concerning government-sponsored schemes.

The following were main recommendation of Usha Thorat Committee:

1. LBS should be continued to accelerate financial inclusion in the unbanked areas of the country.
2. Private sector banks should be given a greater role in LBS action plans, particularly in areas of their presence.
3. Enhance the business correspondent model, making 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.

“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