The Hindu Business Line : Revitalise the Lead Bank Scheme

The objectives of achieving 100 per cent financial inclusion, strengthening the microfinance and cooperative sector, and liberating the rural masses from the debt-trap, are possible only with a revitalised lead bank scheme, says VINOD R. RAO.

To have an “area approach” for targeted and focused banking, the Lead Bank Scheme (LBS) was introduced in 1969, based on the recommendations of the Gadgil Study Group. The banker’s committee, headed by F. S. Nariman, concluded that districts would be the units for area approach and each district could be allotted to a particular bank which will perform the role of a Lead Bank. As a consortium leader, the Lead Bank would co-ordinate with government office s, banks and other stakeholders, undertake planning and formulation of Annual District Credit Plans through Block and District Consultative Committees and help in synergising all efforts to fulfil Plan priorities and district-specific requirements.

Over the years, the LBS has evolved incorporating areas such as priority sector lending, differential rate of interest, potential linked plan of Nabard, and focussing on small and medium enterprises and self-help groups.

The Government of India has constituted a High-Power Committee headed by Mrs Usha Thorat, Deputy Governor of the RBI, to suggest reforms in the LBS. The panel has a daunting task to perform, given the challenges facing the banking sector, especially in an era of increasing privatisation and autonomy. Balancing profitability with inclusive service-extension is a real challenge. In a competitive environment, transaction costs have to be minimised further, even while ensuring social and geographical spread of services. With new players such as private banks, non-banking financial institutions, micro finance institutions and NGOs playing a significant role, synergising their efforts towards the larger national goal also needs to be explored and ensured. And, equally important, will be the task of reviving healthy banking mentality among the rural poor, especially after the major loan-waiver programme.

Strengthening the institution of LBM

To begin with, we have to strengthen the institution of Lead Bank Manager (LBM). An officer not below the rank of Assistant General Manager should be posted as Lead Bank Manager (LBM) after weighing his credentials, aptitude and willingness. In larger districts, depending on the volume of work, even officers at the levels of DGM or even GM could be posted as LBM. The Manager should be given administrative control over the branch managers of all the banks. This is necessary for commanding authority, control, and supervision over all the Branches. The LBM should be vested with the powers of the Controlling Officer, including assessing the performance of the staff (Annual Performance Appraisal). This will go a long way in establishing a centralised system of command and control at the district level. A strengthened LBM can also be effective in coordinating between the State-level Bankers’ Committee (SLBC), banks and government agencies.

Equally critical is strengthening the Lead Bank Office (LBO). Today, it is largely a single-member branch, without much support staff or logistical backing. The LBO should emerge as the focal point of all banking-related activities in the district, and a single-contact point for SLBC and Nabard. In fact, the Nabard’s District Development Manager should also be integrated within the set-up of the LBO, so that both can perform complementary role instead of duplicating efforts.

Nabard’s Potential Linked Plan and the Lead Bank’s Annual Credit Plan can be integrated. The LBO should also be empowered, in consultation with the District-level Consultative Committees (DLCC), to engage professional consultants for preparing Annual Credit Plans. This will make it a dynamic and meaningful exercise.

Equally important is the need to engage third-party monitoring agencies to oversee the veracity of reporting and the impact assessment. In today’s system, there is little room for cross-checking the correctness of the reports or its real outcomes in the field.

IT-enabled system

Use of technology and computerisation will make real changes in the present system. LBM today is mostly tied down to collection and compilation of reports from branches. Very often, these reports come either too late, or with incomplete or unreliable data. This does not permit concurrent monitoring, which is necessary for mid-term evaluations and corrections. Only by up-linking the data of all the branches, and having a uniform software — which can concurrently compile and generate reports out of data of all the branches daily— can the process of monitoring be made more efficient.

The new LBS should completely do away with the system of reporting; instead, a computerised, up-linked database should be created in the proper format, which should be updated daily by all the banks.

With this IT-enabled and efficient system in place, LBM can focus more on meaningful planning and effective monitoring. With professional agencies to assist, the Village Level Credit Plan can be restarted to ensure maximum spread of financial inclusion and banking services.

New parameters for performance evaluation — such as the number of new households included and quality of SHG linkage and efforts towards 100 per cent financial inclusion — should be evolved rather than the traditional review based on quantum of credit advanced, credit-deposit ratio, recovery rate, and priority sector advances.

Unofficially ‘black-listing’ the entire village merely because of a few defaulters, as practiced by many banks, should be done away with.

Corporate ventures

With banks increasingly transforming into partners for corporate ventures, rather than mere financiers, the corporate sector too should be brought within the LBS framework. Representatives of prominent manufacturing, trade, commerce and farmers’ associations and corporate houses could be included as members of SLBC and even DLCC. Their active participation in planning and monitoring of banking services could help in getting first-party feedback from the ‘other’ side of the sector. It will also aid in making progress in newer horizons — BPO, rural service sector, retailing revolution, organic farming, agro-processing, horticulture, micro-enterprises, web-enabled services, rural infrastructure, rural transportation sector — which would have multiplier effect in the rural economy. The thrust should be not merely on corporate social responsibility, but selling poverty alleviation as a profitable business proposition — a mutually beneficial proposition.

The current LBS does not have an inbuilt mechanism for grievance redressal. To make the system more accountable and responsive, banking ombudsman should be brought within the framework and should be part of SLBC and DLCC. Certain specific powers of the ombudsman could be delegated to the LBM himself. This, in addition to his seniority, would enhance his authority and, at the same time, make him more accountable for delivering outcomes. Equally important is the need to bring in the insurance ombudsman also within the purview of the LBS. Today, there is hardly any forum readily accessible to the public, especially farmers, to raise grievances relating to pending insurance claims and complaints.

Only a revitalised LBS can meet the ever-increasing challenges facing the banking sector. If the mission of 100 per cent financial inclusion, ensuring balanced social and geographical reach of services, strengthening of microfinance and cooperative sector, and liberating the rural masses from the vicious debt-trap has to be actualised, the LBS must be equipped and geared to respond to the call. It should set out for optimal utilisation of natural, human, technological and financial resources for reaching out to the poorest. Only this will bring about sustainable and inclusive growth.

(The author is a Gujarat cadre IAS officer.)