IAS Gyan



21st October, 2021 Mains


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.


On the recommendation of the Gadgil Study Group and Banker’s Committee, the Scheme was introduced by RBI. The committees 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.


D.R.Gadgil study group recommended the adoption of an ‘AREA APPROACH’ to evolve plans and programs for the development of adequate banking and credit structure in rural areas.

Prof. D R Gadgil committee recommended the following points:

  • Banks should provide integrated banking facilities in unbanked areas.
  • Adoption of ‘Area Approach’ – in unbanked areas –each bank should adopt an area.
  • Help Agriculture & Supplemental Security Income (SSI).
  • ‘District’ identified as the smallest geographical unit for the scheme.


NARIMAN  committee appointed by RBI endorsed the ideas of area approach in its report recommended that each bank should concentrate on certain districts where it can act as ‘LEAD BANK’.

Pursuant to the above recommendations, the lead bank scheme was introduced by RBI in December 1969.

The lead bank scheme assigned lead role to individual banks in the public sector and private sector for the districts allotted to them.

A bank having a relatively large network of branches in rural areas of given districts and having adequate financial and manpower was generally been entrusted with the lead responsibility for that district.

The lead bank act as a leader for coordinating the efforts of all credit institutions to increase the flow of credit to agriculture, small scale industries, and other areas.

Objectives of the Lead Bank Scheme

  1. Identify those regions which are unbanked and underbanked in districts and also evaluate their physiographic, agro climatic end Socio-economic conditions through economic survey.
  2. Help in removing regional imbalances through appropriate credit deployment.
  3. Extend banking facilities to unbanked areas
  4. Identify economically viable and technically feasible schemes.
  5. Bring structural and procedural changes in banking sector.
  6. Develop co-operation amongst financial and non-financial institutions.

Advantages from the scheme

  • It did spread the availability of banking facilities all over the country.
  • Interlink the commercial & co-operative banks.
  • More effective branch expansion.
  • Better relationship b/w government & banks.
  • Integration of credit activities of banks.
  • This scheme would assist in implementation of District Plan.


District Credit Plans (DCP’s)

  • It was implemented in 1974.
  • It consists of technically & economically viable schemes which can be taken up for financing.
  • It is a plan of bankable schemes in agriculture, industry & services sectors of the district.
  • Implement the program in collaboration with other institutions.
  • Monitor progress & evaluate progress in achieving targets.


Progress of Lead Bank Scheme

By 1974 –90% of geographical areas in Assam, Bihar, West Bengal, Orissa, Madhya Pradesh, Uttar Pradesh was covered.


The study committee appointed by RBI in Gujarat & Maharashtra concluded the following points.

  • Lead Banks were successful in identifying potential area for new branches.
  • Formulation & implementation of DCP’s was slow.
  • They suggested preparation of Annual Action Plans followed by Annual Credit Plans (ACP’s).
  • By mid 90s, the lead bank scheme covered 493 districts.



  • There is a confusion regarding the concept of ‘Lead Bank’ especially for opening branches –ambiguous scope & objectives.
  • Lag in Co-ordination & effective functioning b/w banks & financial institutions.
  • Problems in allotment of Districts.
  • Problems in preparation & uniformity of DCP’s.
  • Did not consider the role of Co-operatives which is the important source of institutional finance.



Usha Thorat Committee on LBS

A high- power committee was constituted by the 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 recommendations 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.
  • 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.


Final Thoughts

From the above discussion we can conclude 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.