- CHAPTER I11

Genesis and Progress of the Lead Bank Scheme

INTRODUCTION

The Lead Bank Scheme was introduced i n 1969 t o

p i d e the Commercial Banks, Regional Rural Banks and

Co-operatives f o r making t h e i r a c t i v i t i e s more e f f e c t i v e .

They a r e expected t o mow t h e l o c a l problems i n e s t i m a t i n g

and meeting the c r e d i t needs of t h e people belonging t o

weaker sections. Under t h i s scheme, a bank i s t o be

designated as a lead bank i n order t o assume t h e lead

r o l e i n providing i n t e g r a t e d banking f a c i l i t i e s I n t h e

d i s t r i c t . The Lead Bank Scheme therefore , i s expected

t o shoulder var ious responsibilities l i k e , conducting

p e r i c d i c a l s w e y s , prepara t ion of c r e d i t plans, monitor

t h e progress.

During the l e s t two decades s ince 1969 t h e

banking scene i n I n d i a has undergone a rapid t r a n s f o r -

metion i n terms of Scale of operation8 a r e a coverage

and contents i ssues taokled kaeplng i n tune with t h e

changes t h a t have been taking p lace i n t h e Socia l , Pol i -

t i c a l and Economic environment. With t h e in t roduct ion

of Lead Bank Scheme end commercial banks n a t i o n a l i s a t i o n

a beginning was made t o make banking s e c t o r an important

Cata ly t ic agent f o r o v e r a l l ecohomlc development.

The genesis, objec t ivee , funofions and t h e

progress of Lead Bank Scheme a r e reviewed i n thin chapter .

LEAD BANK SCW,? (GENESIS1

The National C r e d i t Council, which was e n t r u s t e d

with the r e s p o n s i b i l i t y of l a y i n g down guidel ines t o be

followed by t h e commercial banks and o ther f i n a n c i a l

i n s t i t u t i o n s while determining t h e quantum of c r e d i t t o

var ious s e c t o r s of t h e economy i n acoordance with t h e

National Planning, constituted a study group under t h e

Chairmanship of Prof. D.R.Gadgi1, t h e then Deputy Chairman

of t h e Planning commission, t o probe i n t o t h e problem of

bui ld ing up of an appropr ia te "Organisational Frame work

f o r the Implementation of S o c i a l Objectives". The study

group viv id ly analysed t h e most vexat ious problem of

mal-adJustment between t h e demand f o r and t h e supply of

c r e d i t by the commercial banks, wi th a p a r t i c u l a r

reference t o t h e g r a s s negligence of p r i o r i t y s e o t o r s

l i k e agr icul ture , small indus t ry , self-employed, t r a d e

profess ionals e t a .

The study group, submitted i t s repor t i n October.

1969.' The group drew a t t e n t i o n t o the f a c t t h a t

commercial banks drd not have adequate preeence i n r u r a l

a r e a s end a l s o lacked t h e requi red r u r a l o r i e n t a t i o n . AS

1, Reserve Bank of I n d i a Or a n i s e t i a n a l Frame work f o r t h e Implementation ofSSoc:al Objectives, Op. c i t . , p.87

a r e s u l t , the banking needs of t h e r u r a l a r e a s i n g e n e r a l

and the backwe& regions i n p a r t i c u l a r , could not be

adequetely taken c a r e o f , and t h e o r e d i t needs of t h e

a g r i c u l t u r i s t ~ s were neglected by commercial banks. The

study gmup therefore , recommended t h e ' a r e a approach'

f o r banking indust ry , t o evolve p lans and progranlmes

f o r t h e development of banking and c r e d i t s t r u c t u r e .

Under t h i s spproach commercial banks should be ass igned

t o a p a r t i c u l a r d i s t r i c t i n an a r e a where it should a c t

a s pane s e t t e r s , providing i n t e g r a t e d banking f a c i l i t i e s ,

and i n t h i s way a l l t h e d i s t r i c t s should be covered. The

Planning Commission has r i g h t l y s t r e s s e d t h i s approach

i n i t s Fourth plan ~ o c u m e n t . ~ his approach would help

t h e commercial banks t o know about t h e l o c a l problems

and t o make s u i t a b l e arrangements f o r t h e problems.

Taking i n t o cons idera t ion of var ious problems t h e

Reserve Bank of India appointed a a m m i t t e e of Bankers

headed by F.K.F.Nariman, f o r r a t i o n a l i r i n g t h e expansion

of branches of n a t i o n e l i s e d commercial banks. The

Nariman Committee submitted i t s r e p o r t i n November, 1969.

I t has a l s o emphasised t h e b a s l c P r i n c i p l e s of an ' a r e a

approach'. It has recommended t h a t , i n o r d e r t o enable

2. Government of I n d i a Fourth Five Year Plan (1969-74), New Delhi, ~ l a n n i n ~ ' ~ o m m i s s i o n , p.111.

t h e Public Sector B a a s t o d ischarge t h e w s o c l e l r e s -

p o n s i b i l i t y , each bank should concentra te on c e r t a i n

d i s t r i c t s where ~t should a c t a s a Lead Bank. Af ter

considering t h e recommendations of t h e study group and

t h e Nariman Committee, t h e Reserve Bank of I n d i a evolved

t h e LEAD BANK SCG:ME, towards t h e end of 1969, based on

area approech t o banklng d ~ v e l o p m e n t . ~ The c r u c i a l idea

of the lead bank scheme i s t h e a l l o c a t i o n of each d i s t r i c t

t o a commercial bank an t h e b a s i s of ~ t s l o c a t i o n and i t ' s

a r e a of operation f o r assuming a r o l e of pace-se t ter and

peth-finder i n providing in tegra ted banking f a c i l i t i e s

i n t h e d i s t r i c t and i n t h i s process a l l t h e d i s t r i c t s

i n the country should be covered, and t h e commercial

banks would be assigned t o p a r t i c u l a r d i s t r i c t s not only

t o provide banking f a c i l i t i e s but a l s o t o ident i fy and

study t h e l o c a l problems and evolve an i n t e g r a t e d c r e d i t

plane f o r the areas . Thls is t h e f i r s t and foremost

s t e p i n making t h e i n s t i t u t i o n a l f inance a v a i l a b l e t o

neglected areas . The lowest unit under t h e area approach

has t c be necessar i ly i d e n t i f i e d with t h e d i s t r i c t , a s

t h e d i s t r i c t 1 s t h e maln administrative u n i t and most

a t a t i s t i c a l and o t h e r d a t a a r e a v a i l a b l e a t t h e d i a t r i c t

3. Reserve Bank of I n d i a Re O r t on Currenc and Finanoe, Bombay, 1969-70 ~ o l . I ' ~ c c ~ c m i c Review, :lob.

l e v e l only.4

The lead bank soheme therefore , c o n s t i t u t e d

consortium approach on t h e par t of t h e commercial banks

t o the problem of banking development based on t h e ' a r e a

approach'. To eneble banks t o assume t h e i r lead r o l e i n

an ef fec t ive and systematic manner e l l d r s t r i c t s i n t h e

country excepting t h e metropolitan c i t i e s o f Bombay,

Calcutta, Madras and c e r t a i n Union T e r r i t o r l e s were

a l l o t t e d among Public Sector and a few Pr ivate Sector

Ldnks.

OBJECTIVES OF THE LEAD BANK SCHEME

The Lead Bank Scheme was expected t o achleve t h e following

objec t ives :

(1) To ident i fy t h e unbanked and underbanked cent res i n

d i s t r i c t s and t o grasp t h e i r p r o f i l e , physiographic,

agroclimatio end Sacio-economic condi t ions through

economic s w e y ;

(2 ) To help i n removing regional imbalances through

appropriate c r e d i t deployment;

( 3 ) To &tend banking facilities t o unbanked areas ;

( 4 ) To estimate t h e c r e d l t gaps i n t h e various SeOtorS

of economy of each d i s t r i c t and t o prepare t h e c r e d i t

plan f o r each d i s t r i c t ;

( 5 ) To ident i fy technica l ly f e a s i b l e and economioally

viable bankable schemes;

( 6 ) To survey the resources and potent ia l f o r banking

development In i t s d ~ s t r i q t s ; ~

(7) To e f f e c t s t r u c t u r a l and procedural changes i n banking

sec tor ;

( 8 ) To evolve, i n t e r a l i s methods of exchanging informa-

t i o n among themselves about intendin8 borrowers and

lending t o p r i o r i t y s e c t o r s ;

(9) To develop co-operation and co-ordination among t h e

f inancia l and non-financial i n s t i t u t i o n s , including

the administrative a u t h o r i t i e s , in t h e o v e r a l l deve-

lopment of t h e district, and

( 1 0 ) To serve a s a c lear ing house f o r discussions of

problems a r i s i n g out of financing p r l o r i t y s e c t o r s .

FUNCTIONS OF A LEAD RANK

I n the l l g h t of i t s o b ~ e c t i v e s t h e lead banks

were asalgned various funct ions , t a s k s and responsib i l i -

t i e s . The following a r e some of t h e important funct ions

5 , Reserve Bank of India Annual Re o r t on Wend and R o a e s s of BankLna ii India , &bay, 1972-73, p.41.

t h a t a re psrforned by Lead Banks dur ing t h e period of

implementation of t h e Lead Bank Scheme.

(1) Conducting Economic Surveys i s t h e f i r s t and foremost

function of a lead bank. The lead bank has t o conduct

e quick survey of t h e economy of t h e d i s t r i c t , and

prepare an economic map ident i fy ing t h e growth

oentres and indica t ing t h e c r e d i t p o t e n t i a l a s Well

a s deposit mobi l i sa t ion , c r e d i t deposi t r a t i o s , per

capi ta income, savings pat tern , saving-investment

r a t i o s , the s i t e and d i s t r i b u t i o n of population i n

the d i s t r i o t , t r a n s p o r t , health and medical f a c i l i -

t i e s avai lable i n t h e d i s t r i o t , t h e census of small

sca le and cot tage i n d u s t r i e s and medium and lorge

Scale indust r ies run i n t h e pr lva te , public, oo-ope-

r a t i v e and j o i n t s e c t o r s .

(2) Preparation of Credi t p l a n s i n consul ta t ion and

oo-operation wlth o ther commercial and co-operative

banks, number of o ther o f f i c i a l and non-off ic ia l

agencies the lead bank has t o evolve a c r e d i t p lan

f o r t h e d i s t r i o t taking i n t o cons idera t ion t h e needs

of t h e various s e c t o r s of t h e economy and t h e deve-

lopmental potent ia l of t h e key areas o r growth

cent res . The lead bank has t o give t h e broad frame

work of t h e d i s t r l c t economic p lan while fo rmula t ing

the schemes of supply of c r e d i t t o var ious s e o t o r s .

( 3 ) The lead bank has t o conduct per iod ica l surveys, i n

order t o reap maximum b e n e f i t s from the scheme.

These surveys should cover t h e changes t h a t a r o

t ak ing place i n the economic scene of t h e d i s t r i o t

and t o loca te t h e a reas o r c e n t r e s which w i l l

contribute i n a s u b s t a n t l a l manner f o r the econcmio

growth of the d i s t r i c t i n fu tu re .

(4) The lead bank was t o a c t a s a o o n s o r t i m l e a d e r f o r

coordinating t h e e f f o r t s of a l l c r e d i t i n s t i t u t i o n s

i n each of the a l l o t t e d d i s t r i c t s f o r expansion of

branch banking f a c i l i t i e s and f o r meeting the c r e d i t

needs of t h e r u r a l The lead bank scheme

did not envisage a monopoly of banklng bus iness t o

the l ead bank i n t h e d i s t r l c t , Another s l g n l f i c a n t

r o l e envisaged f o r a l ead ba* i s providing a

dynamic l eadersh ip t o o t h e r banks, c o n s t i t u e n t

member u n i t s , i n depos i t mobi l i sa t i cn (evolving a

r a t i o n a l acheme of depos i t mobi l i sa t ion wi th minimum

poss ib le opera t iona l c o s t s and not g iv ing any s o o p

f o r unhealthy oompetit ion among the var ious i n s t i -

t u t i o n s i n the d i s t r i c t engaged i n t h e banking

6. Re8ewe Bank of Ind la Re rt of t h e vrcrkin Grou t o Review the working of1Lea?8ank Scheme, ~cm&y, 1g72, p.7.

business) dnd branch expansion prcgcammes. The

lead bank should not be eager t o grab a l l t h e

benef i t s t o i t s e l f . It should follow e pol icy

of l i v e and l e t l i v e .

( 5 ) The lead bank i s a l s o expected t o f a c i l i t a t e a d i s c i ~ s s i o n s

constant dialogue, debatc,land nlutual exchange of

views and opinions on t h e problems of banking,

c r e d i t expansion, c r e d i t planning, deposi t mobi-

l i s a t i o n , branch expansion, improving t h e customer

services , improving t h e opera t ional e f f i c i e n c y of

t h e c o n s t i t u e n t member banks, a p p r a i s a l of t h e

performance, establishing sound and e f f e c t i v e

communication l i n k s wi th t h e Government, and

o ther c r e d i t i n s t i t u t i o n s , business and indust ry

and public a t l a r g e and number of o t h e r a l l i e d

problems of t h e d i s t r i c t .

(6) The lead bank should e s t a b l i s h the guidel ines , norms,

principles and evolve a l o g i c a l , r a t i o n a l end

f e a s i b l e programme of a c t i o n aimed a t achieving

maximum poss ib le co-operation and co-ordination

among t h e d i f f e r e n t banks, governmental and

non-governmental agencies working i n t h e d i s t r i c t .

(7) The lead bank i s expected t o show t h e proper Place

f o r the non-lead banks a l s o i n t h e r u r a l c r e d i t

scene. The lead bank has t o evolve a s u i t a b l e

mechan~sm f o r t h i s purpose and l a y down a broad

framework and guidel ines t o channelise t h e

resources of t h e commercial banks through co-opera-

t i v e s t o agriculturists and other most deserving

borrowers i n t h e d i s t r l o t .

( 8 ) The lead bank should aim a t wiping out t h e regional

imbalances i n t h e development of banking a s wel l a s

i n t h e economic growth of t h e lead d i s t r i c t .

( 9 ) The lead bank has t o a c t a s an innovative leader .

I t has t o guide and a c t a s a path-finder and paoe-

s e t t e r t o o ther banks i n t h e d i s t r i c t asslgned t o

it i n preparing a l a r g e number of plans, schemes,

and programmes f o r t h e development of p r i o r i t y

sec tors l i k e agriculture, cot tage and small s c a l e

indust r ies , provision of employment t o t h e a r t i s a n s ,

craftsman, and developing t h e l a t e n t energies and

s k i l l s of the l o c a l s k l l l e d workers.

(10) The lead bank should a l s o facilitate t h e e s t a b l i s h -

ment of multi-purpose oo-operative s o c i e t i e s , fa rmers

Service 600ietieS etO., f o r promoting Co-operation

among l o c a l people.

(11) The lead bank should a l s o undertake programmes

of educating and informing t h e masses ( p a r t i -

cular ly t h e r u r a l masses) about t h e b e n e f i t s

t h a t w i i l flow from the implementation of t h e

lesd bank scheme.

(12) The lead bank should prepare a scheme o r plan

f o r the organlsa t ion and a thorough overhaul

of t h e e n t i r e machinery of banking and o t h e r

f i n a n c i a l l n s t l t u t l o n s in the d i s t r i c t i n order

t o see t h a t t h e banking organisa t ion w i l l a v a i l

e l l t h e e x l s t l n g f a c i l i t i e s and t a p a l l t h e

poss ib le oppor tuni t ies and i a o i l l t i e s t o t h e

maximum extent and channelise i t s c r e d i t flow

t o t h e most productive sources, s r e a s , c e n t r e s

etC. Thus, the lead bank i s ent rus ted with t h e

r e s p o n s i b i l i t y of reorganlsing and r e s t r u c t u r i n g

the e n t i r e a c t i v i t y of banking and f inancing of

agr icul ture and a l l i e d a c t i v i t r e s i n t h e district.

(13) The lesd bank should launch appropr ia te t r a i n i n g

programmes f o r t h e s t a f f n~erabers of various

commerclal and co-operative banks e t o . , because,

it 2s p a r t i c u l a r l y necessaw f o r bank o f f i c e r s ,

especia l ly those In r u r a l a r e a s and semi-urban

s reas a s a l s o those working i n co-operative

i n s t i t u t i o n s , have t o develop proper apprecia-

t i o n of t h e scheme.

IMPLEVANTATION OF THE LBS IN INDIA

One of the important t a s k s before t h e lead bank

scheme immediately a f t e r i t s introtluotion was t h e a l l o c a -

t i o n of d i s t r i c t s among var ious commercial banks s t a r t e d

dur ing 1967. Accordingly I38 d i s t r i c t s have been a l l o t t e d

among 25 banks. The next s t e p i s t o i d e n t i f y bankable

c e n t r e s through i n i t i a l sumeys where bank o f f i c e s can De

es tabl i shed wi th the help of o ther banks working i n t h e

d i s t r i c t . These i n i t i a l surveys have been completed i n

almost a l l the d i s t r i c t s between 1969 and 193,'

The second phase came l n t o exis tence i n 1971

with the formstion of D i s t r i c t Consultative Committees.

The formation of d i s t r i c t consul ta t ive committees i n

a l l the d i s t r i c t s have been completed by 1 5 7 3 . ~

The prepara t ion of Credi t Plan was t h e t h i r d

phase D i s t r i c t c r e d i t plans are being prepared by the

lead hsnka a s area s p e c i f i c o r e d i t p lans , which Seek t o

d i r e c t t h e c r e d i t flow evenly i n t o var ious areas and

s e c t o r s of the d i s t r i c t s acoording t o t h e i r developmental

needs. In preparing c r e d i t plans d i f f e r e n t banks adopted

7. Reserve Bank of India , Annual Report on Trend and Progress of Banking i n India , Bombay, 1573-74, p.42.

8. Ih id , p.42.

d i f f e r e n t methodologies. There may be some s i m i l a r i t i e s

i n t h i s respect but s ~ m i f i c s n t devia t ions were not iced .

The wel l prepared d i s t r i c t c r e d i t p lan , ConStitUteS an

important source of information on self-employment oppor-

t u n i t i e s whloh can be financed by c r e d i t institution^.^ Each d i s t r i c t c r e d i t plan w i l l have t h r e e aspec ts v i z . ,

1 ) t h a t of establishment of branches o r new u n i t s a t

particular places.

2 ) t h a t of formulating re la t ionships within a s t r u c t u r e

as between s t r u c t u r e s , and

3 ) the formulations of proper p o l i c i e s and procedures.1°

The four th phase of Lead Bank Schema is t h e

preparation of second round d i s t r i c t c radi t -p lans . Pra-

para t ion of Fourth round of D i s t r i c t Credi t Plans has

a l s o completed during 1985-90. The Reserve Bank of I n d i a

ha8 asked the lead banks t o prepare a time bound programme.

A separa te c e l l , v iz . , Rural planning and c r e d i t c e l l has

been s e t up by the Reserve Bank of India f o r proper guidance

and supervieion over the prepara t ion of t h e c r e d i t plans.

The period oovered under each phase is on the f u n c t i o n a l

b a s i s and not on the chronological b a s i s .

9. PIGKf, Eoonomic Review, Monthly Eoonomic Journal of Syndicate Bank, Vo1.31, Na.10 May, 1986, pp.5-6.

10. Resellre Bank of India , O r ~ a n i s a t i o n a l Frame work f o r the Iwlemente t ion of S o c i a l Ob.lectivea, Op, c i t . , p.63.

The implementation of t h e Scheme s t a r t e d wi th

t h e a l l o c a t i o n of i s t r i c t s among var ious commercial banks

f o r assuming t h e lead r o l e . During t h e year 1969, 338

d i s t r i c t s , wlth t h e exception dr metropoliton c l t i e s and

t h e Union Territories of Delhi, Goa, and Chandlgarh have

been a l l o t t e d among 25 banks v i z . , S t a t e Bank of I n d i a

and i t s seven s u b s i d i a r i e s , 14 nat ional ised banks and

t h r e e pr iva te s e c t o r banks.

The a l l o o a t i o n of d i s t r i c t s among 25 hanks is

guided by severa l cons idera t ions such a s i) t h e s i z e of

t h e bank i i ) t h e cont igui ty of d i s t r i c t s i i i ) t h e

adequacy of resources of t h e bank i v ) t h e regional

o r i e n t e t i o n of benks end v ) t h e d e s i r a b i l i t y of each

S t a t e t o have more than one lead bank opera t ing i n i t s

t e r r i t o r y and of each bank t o have lead r e s p o n s i b i l i t y

i n more than one s t a t e . "

The number of branches being t h e i n d i c a t o r of

t h e s ize , c o e f f i o i e n t of o o r r e l a t i o n i s uaed t o v e r l f y

whether t h e r e i s any r e l a t i o n s h i p between t h e number of

d i s t r i c t s a l l o t t e d and t h e number of branches of each

bank. The ca lcula ted co-ef f lc ient of o o r r e l a t i o n (P @9)

11. Government of India Reeort of t h e Banking Commission, New Delhi, 1972, p i g .

ind ica tes a very high degree of r e l e t i o n s h i p between

these two var iab les implying t h a t t h e a l l o c a t i o n of

d i s t r ~ o t s t o various lead banks i n t h e country i s i n

accordance with t h e c r i t e r i o n of s i z e . The resouroe

pos i t ion of a bank indica tes i t s a b i l i t y t o take a

lead r o l a under t h e scheme. That i s why, it i s con-

s idered t o be one of the important c r i t e r i a f o r

a l l o t t i n g d i s t r i c t s . Assets and l i a b i l i t i e s of banks

a r e t rea ted a s resources and the cc-ef f ic ien t of

c o r r e l a t i o n has been computed between the number of

d i s t r i c t s a l l o t t e d t o each banks and i t s a s s e t s /

l i a b i l i t i e s . The o c r r e l a t i o n between them t u r n c u t

t o be a highly s i g n i f i c a n t one ( r - +0.92), ( s r c Pohle 1 .1 ) .

The allotment of d i s t r i o t s t o various lead banks

i s i n confomi ty with t h e geographical cont igui ty . For

determining geographical cont igui ty , t h e nearness of

d i s t r i c t s a l l o t t e d t o each bank i n each s t a t e i s taken

i n t o aooount. I n t h e case of 266 d i s t r i c t s out of 379

d i s t r i o t s a l l o t t e d t o var ious ba tks i n the country, more

t h a n 60 per cent a r e located c l o s e s t t o each o ther ,

while i n t h e case of 109 districts about 50 per cent of

them are c l o s e r . I n respec t of remaining four d i s t r i c t s ,

t h e r e i s a wide spread of d i s t r i c t s . This implies t h a t

70 per cent of the d i s t r i c t s a l l o t t e d have high geographical

Nl l l l l IR O i OISIRICTS R l l O I I O 10 L l d l BRHKS BY IIRTI.NIS1 RNO SRNK.YISI RB ON 3 1 1 1 O L C I I I I R , 1?18. ......................................................................................................................... 3 1 S I R I I I U Y ~ O N S I R 1 1 S T R I I B l l l l S T A l l S I E i I l A l l E 1 l I f l A l i U H I l l 1 U k I T I D PlHJRB

I I R R I I O R I dhHK O i B R N O i s r x r M V K Of BANK BRNK BRNK Of BANK 0 1 BYNOI. !HOIAH CWIRL, lAHK N A I l o - IHOIR HIOIR- I IRIYRB. O I SOU- N Q l T I l i R B l K k l l i R CRTI BRYC BRHK Of YRL

RSRO l l S O R i CORI Rl iS lRA lWOOR1 1JRlPUR l h N K l N O l R SANK ......................................................................................................................... 1 1 I I I h 1 3 9 I O I I l 2 I 3 I1 I S

2 1 C I Rsoorrr~ k i i r t i !

L l i l i l l l l r l l l l 3 b 2 8 1 2b 114.13 1 l h . 8 8 I b i 11 318.71 1 8 1 . 1 1 133 I d 933.11 1 5 1 1 bl 1 I b 1 . 1 1 1135.29 ......................................................................................................................... H O l I i I h s r ~ wr OISTRI:I I$ i l l o u d !& i p l r t i l u l l r b a n i , I h l n l i r l l ! 01 th! 8 l l ~ I ~ i

U ~ i i r l l ! t~ 0 t h ~ i l i i r l ~ ! I~UI t h e l t a l Bank EI~BM ii I n o p t r i t > n n $ 9 r o n u d r r e l i l o r t h ~ ~UrPil ~f c o n t ~ ~ l i i l ~ . l 3 I i l e l i n k o r l ; I i n l r 06 Ji lpur ln l l t h e Ban' o i R h . r r l h l n i r r , o l n t l y Dpsreinq t h e l r h l u ~n id i lpv r O ~ s t r ~ r l E{

R l l l l t ! ~ i n , Ill i l i l l l ~ t h i 9 blei ~ n c l ~ d ~ i u n i t , o n l y me l i n k I . # B a n i 01 R a n i t h a n l d ~ 10 ,tWI4#l193tho,, DI 1 % l i l l l r l t t i M YarlOUS S t 4 : ~ !hw n U k r 01 d h b l ~ ~ c ! 5 under l h e ~ c h t # e h a ~ e

In l r r l lb I t o 131. I h l I o . . m l n i art I h s o o l l l r b i nw d : i t r l r t i 1110!11 to i i r i l iu i t i n h i an l l i i l r t n ! l i i t e i ,

c o n t i g u i t y and 29 per c e n t have moderate c o n t i g u i t y ,

while only 1 p e r c e n t of t h e d i s t r i c t s l a c k c o n t i g ~ i t y .

The f o u r t h c r i t e r i o n v i z . , Regional o r i e n t a t i o n of

banks has been, by and l a r g e , s a t i s f i e d . However, i n

respect of t h e f i f t h o r i t e r i o n , which envisages t h a t

each bank should have a lead r o l e i n more t h a n one

J t a t e and each s t a t e should have more than one bank

playing t h e l e a d r o l e , does not seem t o be s a t i s f i e d

f u l l y . For i n s t a n c e , i n each of Dzates of Jammu &

Kashmir, Meghalaya, Manipur, Negaland and W p u r a ,

only one bank i s p laying t h e l e a d r o l e . S i m i l a r l y ,

c e r t a i n banks l i k e S t a t e Bank of Mysore, S t a t e Bank

of Travenoom, S t a t e Bank of Sovrasht ra , S t a t e Bank

of Indore, S t a t e Bank of P a t i a l a , S t a t e Bank of

Bikeneer and J a i p u r , Bank of Maharaahtra, Punjab and

Sind Bank and Bank of Rajas than have t h e l e a d r o l e

i n only one ,&tate each. The o v e r a l l c r i t e r i a followed

a t i n i t i a l s t a g e s has not been much d i s t u r b e d i n f u r t h e r

e l l o c a t i c n of d i s t r i c t s .

Re-allooation o f Lead R e s ~ o n s i b i l i t y

The Committee t o Review Arrangements For I n s t i -

t u t i o n a l C r e d i t f o r Agr icul ture and Rural Development

(CRAFICARD)~~ sugges ted a f r e s h look i n t o t h e p a t t e r n

of d i s t r i b u t i o n of d i s t r i c t s among t h e v a r i o u s b a a s

under t h e Lead Bank Scheme with a view t o ass igning l e e d

r e s p o n s i b i l i t y t o newly n a t i o n a l i s e d banks. Some of t h e

S t a t e Governments have t h e opinion t h a t banks having E

la rge number of lead d i s t r i c t s i n a e e a t e could not

devote edequate a t t e n t i o n t o a l l t h e d i s t r i c t s . They have,

therefore , suggested t h a t t h e number of lead d i s t r i c t s

f o r any bank i n a S t a t e snould not be too large . This

suggestion could be implemented by,

i ) bringing more banks under t h e lead bank group and

i i ) by sui table re-a l locat ion of lead d i s t r i c t s among

t h e e x i s t i n g lead benks.

However, t h e r e i s obviously a l i m i t a t i o n t o t h e

number of addi t ional banks which could be ent rus ted w i t h

lead r e s p o n s i b i l i t y , s ince almost a l l t h e Publ ic S e c t o r

Banks a r e already i n the lead bank group. A t b e s t what

could be thought of i s t o inductlnewly nat ional ised banka

which do not have lead r e s p o n s i b i l i t y . The seoond a l t e r -

na t ive could r e s u l t i n each leed bank having smal ler

c l u s t e r s than a t present , but it i s a l s o l i k e l y t o

d i f f u s e the lead r e s p o n s i b i l i t y , over a l a r g e r number

of a t a t e s . Consequent on t h e c r e a t i o n of new d i s t r i c t s ,

t h e lead r e s p o m i b i l i t y i n four new d i s t r i c t s i n 3 s t a t e s

was ent rus ted t o public s e c t o r banks. As a t t h e end of

April 1989, t h e lead bank scheme covered a t o t a l number

of 445 d i s t r i c t s of t h e country. Table 3.2. presents t h e

number of d i s t r i c t s a l l o t t e d t o commeroial banks i n I n d i a

a s a t the end of December 1986. I t i s evident t h a t out

of 437 d i s t r i c t s 119 d i s t r i o t s (27.23 per oent ) have

been a l l o t t e d t o S t a t e Bank of India and i t s s u b s i d i a r i e s .

The Central Bank of India which accounts f o r 47 d i s t r i c t s

wi th 10.76 per c e n t t o t o t a l oomes next i n importance.

Punjab National Bank with 39 d i s t r i o t s (8.92 per o e n t )

placed t h i r d , while t h e Bank of India wi th 36 d i s t r i c t s

(0.36 per cent ) ranks f o u r t h end Bank of Beroda has a

share of 31 d i s t r i o t s (7.09 per c e n t ) . United Commercial

Bank with 30 d i s t r i c t s (6.86 per oent ) comes next .

I t shows t h a t a g r e a t e r share of d i s t r i o t s a l l

over India went t o t h e S t a t e Bank of India and o t h e r

Publio Sector Banks aa agains t a n e g l i g i b l e shere of

t h e pr iva te s e c t o r b a a s received i n t h e a l lo tment of

d i s t r i c t s . For bank-wlse and state-wlse allotment of

d i s t r l c t s under lead hank scheme a s a t t h e end o f June

1986 See Appendix-IV.

TABLE - 3.1.

D i s t r i c t s a l l o t t e d t o Commercial Banks i n Ind ia a s a t the end o r December 1969 & 1986

B a a No. o f Diat . % t o To ta l a l l o t t e d

1969 1986 1969 1986

1 . S ta ta Bank of India and i t s 7 aubs id i s r i e s

2. Allahabad Bank 3. B a a o f Baroda 4. Bank of Ind ia 5. Bank of Kaharashtra 6. Canara Bank 7. Central Bank o f Ind ia 8. Dena Bank 9. Indian Bank

10. Indian Overseas Bank 11. Funjab National Rank 12. Syndicate Bank 13. Union Bank of Ind ia 14. United B a i of Ind ia 15. United Commercial Bank 16. Andhra Benk 17. Fvnjab & Slndh Bank 18. Corporation Bank 15. Vijaya Bank 20. New Bank of Ind ia 21. Jammu & Kashmir Bank 22. S t a t e Bank of Slkhim 23. Be& of Rajssthan

- - -

338 437 100.00 100.00

Note: O : D i s t r i c t Udaipur has been a l l o t t e d jo in t ly two banks S t a t e Bank of Blkaner and Ja ipur and BaM of Rajaathan. The l a t t e r has no o the r d i s t r i c t a s l ead d i s t r i c t .

Souroe: ReSeNe B a a of Ind ia S t a t s t Gal Tables Re ti t o Bankinn i n Ind iq , ~ o n b a d 5 ; p.124 & 1 9 8 b 2 ; p . k 2 6 .

I n i t i a l Surveys

One of t h e highly impressive teska under t h e Lead

Bank Scheme was t h e conducting of i n l t i e l fu!VeyS i n a l l

t h e 338 d i s t r i c t s i n 1969-70, wi th a view c+assesslng t h e

p o t e n t i a l i t i e s cf t h e d i s t r i c t s and understanding t h e

d i s t r i c t prof i les r e l a t i n g t o t h e i r agro-olimatic, physio-

graphic and socio-economic conditions. The ultimate use

of t h e surveys was to ident i fy t h e unbanked and under

banked centres where branches would be opened and t o

ident i fy viable and b ~ n k a b l e schemes t h a t would be financed

by t h e banks.

The pat tern and proforma of i n l t i e l surveys i n

general waa more o r l e a s uniform. To ensure uniformity

of a l l t h e surveys in t h e country t h e Reserve Bank has

given a oommon bas ic proforma f o r t h e use of banks, which

w i l l e l i c i t s t a t i s t i c s 1 information i n d e t a i l r e l a t i n g t o

t h e d i s t r i c t econoEy, development and functioning of c r e d i t

i n s t i t u t l o m and other inf ra-s t ruc tura l f a c i l i t i e s a v a i l a b l e

i n the d i s t r i c t . Bank Off ic ia ls (who a r e d i r e c t l y in-charge

of D i s t r i c t s w e y s work) conference was convened by t h e

Reserve Bank on April 24, 1970 and t h e scope and purpose

of the surveys were explained t o them a t t h e meeting.12

12. Reserve Bank of India , Reserve Bank of India Bul le t in , Bombay, November, 1970, p.1918.

The sunreys were mostly genera l i n na ture r a t h e r

than technica l . S t a t i s t i c a l da ta per ta in ing t o var ious

geographical aspects such a s , a rea , climate, r a i n - f a l l ,

land u t i l i s a t i o n , s o i l , water resources, mineral r e s o w e 8

e t c . , demographic aapeots l i k e population, sex-ratio, occu-

pa t ional d i s t r i b u t i o n of population, l i t e r a c y e tc . , and

economic aspects including cropping pat tern , progress of

agr icul ture , t rade , industry, service , co-operdtion and

banking have been col lec ted and analysed. The potent ia-

l i t i e s f o r the various sec tors have bean i d e n t i f i e d and

the projections were made f o r f u r t h e r progress. Appropriate

schemes and programmes f o r development of var ious s e c t o r s

i n t h e d i s t r i c t s were a lso suggested.

While estimating t h e overa l l o r e d i t needs of t h e

important s e c t o r s of t h e economy i n t h e d i s t r i c t s , t h e

schemes t o be financed by Government were ignored, as t h e

banks would provide finance f o r development schemes i n t h e

pr iva te sec tor only. With regard t o t h e estimation of t h e

shor t te rn c r e d i t needs of agr icul ture , d i f f e r e n t methods

ware used.

Methodolorn of Estimatina t h e Credit Resuirements

The panel of Economists headed by M.L.Dantwala

adopted two approaches f o r a r r i v i n g a t t h e probable c r e d i t

needs of a g r i c u l t u r i s t s .

M: Credit requirements were assumed t o bear a

c e r t a i n r e l a t i o n s h i p t o t h e va lue of a g r i c u l t u r a l produce.

I n o ther words,calculating the r a t i o of borrowings t o t h e

value c i ne t a g r i c u l t u r a l produce.

b t h o d - 2 : Under t h i s method, per acre borrowings were

multiplied by t h e estimated net acreage under c u l t i v a t i o n

a f t e r giving due consideration t o t h e inorease i n Prices.

Under each of these methods two s e t s of estimates were

made. I n one, t h e e n t i r e borrowings f o r houaehcld expen-

d i t u r e was taken i n t o account i n addi t ion t o t h e borrowings

f o r current expenditure i n farm and non farm business,

while in t h e o ther only 75 per c e n t of t h e borrowings

f o r t h e household expenditure were taken i n t o account

i n addi t ion t o those for farm and non f e r n business.

Gadsil studv arouD Method-I: This i s not a separa te method

and only a modification of the methods of t h e panel of

economists adopted by t h e Study Oroup. Under t h i s method

c r e d i t requirement f o r 1967-68 were estimated taking i n t o

aocount,

a ) only borrowings f o r current ,farm expenditure and three-

fourths of those f o r household expenditure (which i s

mentioned under panel of econcmist method)

b) and r e l a t i n g them t o nationel income i n t h a t year,

(which i s a r r ived a f t e r giving due consideration t o

increase in pr ices of agr icul tura l commodities and

increase i n produotlon) a r a t l o was arrived.

Gadail Studv D m u ~ ~ethod-111' Under t h i s method the amount

of borrowing per acre was multiplied with t h e ecreage under

both high-yielding v a r i e t i e s and local v a r i e t i e s , a f t e r

giving due consideration t o the increase i n pr ices i n t h e

economy.

Gadail Study GrcuD Method-1111~ Under t h i s method, t h e

standards estimated by t h e Reserve Bank of India i n

196546 in c e r t a i n I.A.D.P. areas were followed.

Rural Credit Review Committee Methcd:15 Under t i u s method,

scelea of finance were suggested f o r high y ie ld ing v a r i e t i e s

and local v a r i e t i e s i n i r r iga ted and uni r r iga ted areas .

C r o ~ Loan Method: Based on sca les of finance prescribed

by the Dis t r io t Co-operative Central Banks the shor t term

c r e d i t requirement# of agr icul ture were estimated. The

medium term loan requirements were assumed t o be 10 per

cent of the s h o r t term loan requlrements.

13. Reserve Bank of India Or aniea t ional Frame work f o r t h e ' u, ~ o t c t o r , 19b9, Bombay, p.79.

14. Ibld, p.80. 15. Reserve Bank o t India Re rt on the A l l d a Rural

Credit Review C o m m i t t ~ e ~ c & & 7 p E .

In-depth Surveys

I t was a l s o envisaged t h a t t h e Lead Bank should

conduct follow-up In-depth Survey i n d i f f e r e n t regions of

t h e d i s t r i c t s a l l o t t e d t o them, t o a s s e s s t h e l o c a l oondi-

t i o n s and p o t e n t i a l i t i e s f o r evolving programmes and

s t r a t e g i e s of development s u i t a b l e t o t h e needs and

resource endowments of t h e regions. In-depth s t u d i e s f o r

t h e blocks i n t h e lead d i s t r i c t s a r e meant f o r evolving

schemes comprising technica l ly f e a s i b l e and economically

v i a b l e which can be implemented by t h e commercial banks

and f i n a n c i a l agencies operating i n t h e area wi th in t h e

e x i s t i n g o r marginally strengthened framework of i n f r a -

e t r w t u r e . I f t h e schemes i n these ac t ion plans a r e t o

f a c i l i t a t e t h e development of r u r a l a reas , it i s

necessary t o s e l e c t c e n t r a l l y s i t u a t e d growth points

amidst c l u s t e r s of v i l l a g e s , where basic services such

a s d i s t r i b u t i o n cent res f o r aeeds, f e r t i l i s e r s , pes t ic ides ,

a g r i c u l t u r a l implements and e s s e n t i a l consumption a r t i c l e s ,

extension services , processing u n i t s , f a c i l i t i e s f o r exten-

s ion of c r e d i t and marketing e t c . , can be located, s o a s

t o be within easy reach c i t h e dependent v i l l a g e s . More-

over, t h e banks a r e required t o s e l e c t i n t h e i r in-depth

s t u d i e s of community development blooka, only growth

cent res of t h e lowest order v i z . , t h e c e n t r a l v i l l a g e s

and t h a t too with t h e l imi ted objec t ive of l o c a t i n g

t h e r e i n the bankable schemes.

Credit Planning

Credit Planning unknown t o Indian B a a i n g i n t h e

p a s t , c l e a r l y d e f i n e s t h e system of o b j e c t i v e s on t h e

bas is of which, o v e r a l l business s t r a t e s y can be framed

f o r promoting t h e r e a l i s a t i o n of t h e goals defined i n

t h e context of t h e h i s t o r i c a l r o l e t h a t t h e commercial

b a a s a r e requi red t o play i n t h e development of country ' s

economy. It i s e s s e n t i a l l y an attempt f o r working o u t a

r a t i o n a l so lu t ion t o problems, an attempt t o 00-ordinate

meane and ends.

The r o l e of t h e Lead Bank i s t o be viewed and

assessed i n t h e perspect ive of c r e d i t planning, through

which it i s expected t o estimate c r e d i t gaps e x i s t i n g i n

t h e various s e c t o r s of economy of t h e d i s t r i c t s and t o

evolve schemes f o r f i l l i n g these gaps i n oo-operation

and co-ordination with o ther f i n a n c i a l i n s t i t u t i o n s and

ba&s t h a t a r e opera t ing i n t h e d i s t r i c t .

Credi t Planning and Regional Planning

While c r e d i t a l l o o a t i o n a t t h e bank l e v e l forms

t h e b a s i s of t h e maoro c r e d i t plan of t h e bank i n t h e

context of i t s resources s t rength , a t t h e regional l e v e l

micro credit planning i s dependent on the eupport of

varioua credit agencies. The lead b a ~ achame aims a t

an integrated approach towards an effective micro c red i t

planning for Regional Planning and intmducing a co-ordi-

nated programmes of credit assistance, taking the d i a t r i o t

aa a convenient unit t o be adopied for development

planning.

The concept of planning a t the d i s t r i c t l eve l

fo r Credit and banking development suggested by Cadgll

study group has also recommended the adoption of d i s t r i c t

which constituted the main adminiatratlva unit as the base

unit f o r t h e purpose, because a l l the s t a t i s t i c a l da ta

a re available only a t the d i s t r i c t level. After iden t i fy ing

t h i s the b a t s have prepared the micro plans a t d i a t r i c t

levels, taking in to account various inputs l i k e natural

resources, growth and habits of the local population and

such other factors, a s a l so the infra-etruoturel f a c i l i t i e a

and strength of the co-operative sector and estimation of

the c red i t needs.

Credit Planning-National Planning

As indicated by ~arae lmham'~ credit planning a t

a national level i n a mixed economy covers two stages of

operation

16. M.Narasimham "Credit Plannin I t s Rationale contentn, &-Jan-~sroh ,972,

RS

(1) a t t h e planning s t a g e - t h e o b j e o t i v e s of c r e d i t

policy i n r e l a t i o n t o o t h e r p lan objeot ivee have

t o be determined and t h e e s t i m a t e s of increased

c r e d i t i n t h e context of t h e n a t i o n a l p lan worked

out , and

(2) a t t h s implementation s t a g e - a l l o c a t i o n of c r e d i t

t o be made i n a s e l e c t i v e manner i n terms of pro-

duct ive p l a n s and investment purposes.

When according t o n a t i o n a l pol icy a11 our a c t i -

v i t i e s have n e c e s s a r i l y t o be geared up t o t h e Socia-

economic o b j e c t i v e s of t h e country, c r e d i t p lenning by

t h e commercial banks has a l s o t o be r e l a t e d with r e g a r d

t o purpose and per iod t o t h e t o t a l n a t i o n a l planning.

Credi t Planning Prcoees has two s t a g e s . The

f i r s t s t a g e covers t h e assessment of c r e d i t a v a i l a b l e

t o var ious s e c t o r s and r e g i o m o u t of eetimated

resources a f t e r providing f o r pre-emptlve uses i n terms

of a ta twtory and conventional o b l i g a t i o n s . The second

s tage i s t h a t of a l l o c a t i o n of c r e d i t i n its q u a l i t a t i v e

and d i r e o t i o n a l a s p e c t among v a r i o u s s e c t o r s and regions .

More a t t e n t i o n should be taken i n t h e aecond s t a g e of

t h e prccsas, a s t h e r e g i o n a l economic development is t h e

main objec t ive of c r e d i t plannlng.

The cardinal pr inc ip les of a l l o c a t i o n of c r e d i t p lanning

are :

(1) t o channelise t h e bank's resources i n a more equi table

manner between d i f f e r e n t s e c t o r s of t h e eoonomyi

keeping i n view t h e socio-economic objec t ives and

the needs of t h e p r i o r i t y s e c t o r s , and

(2) t o arrange f o r t h e removal of imbalances of c r e d i t

a l locat ion i n a p h s e d manner i n d i f f e r e n t regions

ao t h a t maximum s o c i a l benef i t flows.

Credit Plan

A c r e d i t plan i s a development plan f o r an a r e a

cons is t ing of technica l ly f e a s i b l e and economically v i a b l e

schemes, which can be financed by f i n a n c i a l i n s t i t u t i o n s .

On t h e bas is of a s t r a t e g y of development t h a t i a s u i t a b l e

f o r t h e area, t h e c r e d i t plan should be drawn up, t a k i n g

i n t o account i t s na tura l endowments, e r i n c i p a l economic

a c t i v i t i e s and t h e i r potent ia l f o r development, current

and ensuing projec ts and f e l t needs of t h e people. I t 1

i s comprehensive and in tegra ted i n t h e sense t h a t it

includes various schemes and projec ts covering a l l t h e

major aectors of t h e economy VIE., Agriculture and

a l l i e d a c t i v i t i e s , Indust ry and Servioea de?ending upon

t h e i r na tura l l inkages. Further, the schemes should b e

such t h a t they can be immediately taken up f o r

implementation, within the e x i s t i n g o r marginally strengthened

framework of available inf ra-s t ruotura l and o ther f a ~ i l i t i e s .

Lack of such f a c i l i t i e s hamper the e f fec t ive implementation

of the plsn. Hence, they should be spec i f ioa l ly pin-pointed

i n the plsn, so t h a t appropriate au thor i t ies oan take

immediate action t o provide such f a c i l i t i e s .

The d i s t r i c t c r e d i t plan i s a plan of a bank f o r

a l loca t ion of i t s available resources among t h e various

types of borrowers i n conformity with the planning prio-

r i t i e s . Credit plan i s a blue pr in t f o r aotion by banks

and other f inancia l i n s t i t u t i o n s i n t h e d i s t r i o t . An

operationally meaningful c redi t plan can be prepared only

after intensive s tudies of small areas such as community

development blocks, which enable the banks to evolve a

Programme of action, based on a s t ra tegy of development

su i tab le t o the needs and resource endowment8 of the

blocks, which then should be aggregated f o r the d i s t r i o t

as a whole,

Credit Plan and Develomnt Plan

da s t a t e d above, the c r e d i t plan is a plan whioh

can be taken up by f inanoia l i n s t i t u t i o n s f o r meeting the

oredi t needs. A d i s t r i c t c r e d i t plan may therefore be

regarded as the f inanoia l framework of a d i s t r i c t deve-

lopment plan. An important d ia t inot ion between a d i s t r i c t

development plan and a d i s t r i c t c r e d i t plan i s t h a t whereas

i n the d i s t r i c t development plan, loca t ion of inira-8tI%0tuI'e

and other f a c i l i t i e s i s decided on grounds suoh aa popula-

t i o n threshold, centre-place theory, growth-centre concept,

f e l t needs of the people e t c . , i n the c r e d i t plan, need f o r

these f a c i l i t i e s t o implement investment and production

programme6 determines the location. Another d l f fe renoe

between the two types of plans is t h a t whereas d i s t r i c t

development plan should go by the soc ia l cos t and benef i t

ana lys is , the c r e d i t plan should necessar i ly go by t h e

cash i n flows end outlows r e f l e c t i n g the pr lva te c o s t s

and benefits. The c r e d i t plan should necessarily go by

the economic v i a b i l i t y of the schemes. Therefore, it is

a Plan for economic development. Only such schemes and

programmes which are economically v iable end technica l ly

feas ib le should be included In the c r e d i t plan becsuae

from the point of view of the lending, c r e d i t a l loca t ion

should be on the bas is of schemes which have the capacity

of generating surpluses f o r repayment of the loans with

i n t e r e s t . Obviously, suoh schemes should be grounded i n

the resources endowment of the d i s t r i c t and should be

capable of implementation on the bas is of ava i lab le inf ra-

s t ruc ture and o ther serv ice f a c i l i t i e s of t h e d i s t r i c t .

A necessary par t of formulating t h e c r e d i t plan is

therefore t o study t h e resomce endowments of t h e d i s t r i o t

and the inf ra-s t ruc ture f a c i l i t i e s elrendy es tabl i shed. On

t h e o ther hand, even programmes which are implemented

within the e x i s t i n g framework of i n f r a - s t r u c t u r e f a c i l i t i e s

may crea te demand f o r supplementary expansion of such

f a c i l i t i e s . These would be c e l l e d t h e i n f r a - s t r u c t u r a l

gaps of any p a r t i c u l a r c r e d i t plan, the Government autho-

r i t i e s would be enabled t o r e a l i s e t h e need f o r a l l o o a t i n g

b d s f o r such purposes. A c r e d i t plan, therefore , w i l l

enable resource a l locat ion f o r an e f f e c t i v e growth. Thia

d i reot ional element of the c r e d i t plan i s a g r e a t e r con-

t r i b u t i o n t o t h e t o t a l d i s t r i c t planning exercise.

Despite t h e influence of c r e d i t plan on t h e

d i s t r i o t development plan mentioned above, t h e bas ic

pos i t ion i s t h a t t h e d i s t r i c t development plan determines

the c r e d i t plan.

Though t h e nature and contents of various d i s t r i c t

c r e d i t plans prepared by d i f f e r e n t banks concerned a r e

s imi lar , there have been s i g n i f i c a n t , d i f ferences i n t h e

methodologies adopted by them. The following a r e some of

t h e methods followed by banks while preparing t h e d i s t r i c t

c r e d i t plans.

w: In t h i s method, data would be col lec ted blook-wias

mostly from the d i s t r i c t author i t ies . Based on t h i s data,

the changes which are going t o be occurred i n f u t u r e were

projected for preparing the credl t plans. This prac t ice was

followed with a view t o giving the branches an idea of t h e

c r e d i t gaps t o be bridged in t h e i r areas. The c r e d i t plan

has not included the d e t a i l s of the schemes. The estimates

of the plan have covered block-wise and year-wise break-up

d e t a i l s for a f i v e year period. The contributions of

co-operatives and commercial banks were a lso incorporated

in the credi t plan,

w: This method i s based on the f i r s t hand infor-

mation collected through block-wise surveys, on natura l

resources, socio-eoonomic conditions, inf ras t ruc tura l

f a c i l i t i e s e tc . The d i s t r i c t plan has covered the schemes

formulated on t h e bas is of discussions with d i s t r i c t

o f f i c i a l s and other important persons. The d e t a i l s of

the schemes were worked out i n t h e plan. The c r e d i t plan

a lso included a separate l i s t of projec ts based on the

inf ras t ruc tura l f a o i l i t i e s under "perspective plan". It

may be regarded a s an aggregation of block-wise annual

estimates f o r a period of three years.

w: Thia method included t h e inionnation f o r t h e

d i s t r i c t covering t h e exis t ing and potent ia l l e v e l s of

development oP var ious s e c t o r s ,and t h e c r e d i t t rends of

var ious commercial bank o f f i c e s located a t s t r a t e g i c

cent res of t h e d i s t r i c t . This i s supplemented by t h e

information col lec ted through t h e discussions held with

t h e Government O f f i c i a l s , Managers of Commercial banks,

Agr icul tur is t s , I n d u s t r i a l i s t s , Traders e tc . , by making

personal v i s i t s t o var ious cent res f o r c o l l e c t i n g t h e

information and ident i fy ing growth cent res . Though t h e

clear-cut methodology was not mentioned, eatimate of

c r e d i t gaps were worked out f o r var ious sec tors while

preparing the c r e d i t plan, but a t r e s s was l a i d on

performance of t h e oommeroial barns r a t h e r than on t h e

c r e d i t gaps. Accordingly, it was divided i n t o two p a r t s

covering a) Sector-wise estimates f o r t h e e n t i r e

d i s t r i c t and b) Bank-wlse es t imates f o r t h e e x i s t i n g

off ices . F i r s t p a r t i s devoted t o t h e t o t a l c r e d i t

requirement of t h e d i s t r i c t . The period covered by t h e

c r e d i t plan was t h r e e years. This a l s o could not

furnish t h e economics of t h e var ious schemes mentioned.

The pecul iar i ty of t h i s category i s t h a t the lead bank

has been entrusted with major r e e p o n s i b i l i t l e s i n a l l

t h e spheres due t o t h e var ious f a c i l i t i e s a t i t s

dispoaal.

a: This method was t h e preparation of t h e es t imates

f o r eaoh bank o f f i c e covering a smal ler geographical a r e a

within a radius of abcut 8 Km-, r a t h e r t h n f o r t h e whole

d i s t r i c t . The v i l l a g e s In t h e a r e a were surveyed and

information abcut var ious c h a r a c t e r i s t i c s of t h e economy

of t h e d i s t r i c t was Collected from d i s t r i c t a u t h o r i t i e s .

Whlle formulating t h e c r e d i t plan, cons idera t ion was

given t o t h e e x i s t i n g i n f r a s t r u c t u r a l f a c i l i t i e s ,

pr inc ipal economic a c t i v i t i e s and p o t e n t i a l i t i e s , q u a l i t y

of human resources, c o n s t r a i n t s e tc . The plans were

f i n a l i s e d f o r each o f f i c e , blcck-wise,oentrewise and

year-wise f o r a pepiod of t h r e e years . The expecta t ion

was t h a t 30 per c e n t of t h e t a r g e t s would be achieved

i n t h e f i r s t year, 40 per cent i n t h e second year , and

t h e remaining 30 per cent i n t h e t u r d year. The c r e d i t

plan, i n t h i s category cculd provide n e i t h e r t h e economics

of various schemes, nor t h e b a s i s f o r t h e i r es t imates .

F u r t h e r l i t i s ambiguous whether t h e t a r g e t s were exclus ive

of margin o r not .

Method-5: I n t h i s method, t h e necessary information f o r

t h e preparation of d i s t r i c t c r e d i t plan was obta ined from

t h e Government O f f i c i a l s and a skrnple of knowledgeable

persons se lec ted without adopting any scientific method.

And i n anme cases it was ent rus ted t o some consul tants .

Thw, t h i s category of plans cculd not f u r n i s h aooura ta

es t imates of t h e c r e d i t gaps and developmental schemes.

Method&: The c r e d i t p lan of t h i s category oovared t h e

depth s t u d i e s of a l l t h e blocks i n t h e d i s t r i c t w i t h an

emphasis on t h e v i a b i l i t y and f e a s i b i l i t y from t h e point

of resource p o t e n t i a l i t y . Of courae t h e a v a i l a b l e

information dram from t h e o f f i c i a l r a c o r d s ) i n d i v i d u a l

d iscuss ions , and e x p e r t opinions were a l s o taken i n t o

cons idera t ion . The t a r g e t s were exclus ive of margin.

The plan covered t h e per iod of t h e F i f t h Plan wi th an

year-wise break-up. The economics of var ious schemes

were a180 discussed i n t h e c r e d i t plan. The bank-wise

t a r g e t s were a l s o prcvided i n t h e p lan .

Method-2: This ca tegory attempted t o undertake an

i n t e n s i v e aurvey i n t h r e e b locks of t h e d i s t r i c t ,

s e l e c t e d a t random. This was Supplemented wi th t h e

b a s i c da ta provided by t h e d i s t r i c t O f f i c i a l s . C r e d i t

es t imates were made sector-wise and year-wise. The

es t imates were exclus ive of margin. The economics of

t h e 9chemes incorpora ted were not glven f u l l y though,

t h e r a t i o n a l of t h e schemes was provided b r i e f l y . The

p lan was prepared f o r 5 years synchronis ing wi th t h e

F i f t h Five Year Plan.

-: This was baaed on t h e i n t e n s i v e s tudy of a

smal l a r e a l i k e a community development black . I t was

viewed t h a t such depth s t u d i e s would not only give a

comprehensive and in tegra ted plan covering a l l t h e major

aec tcrs of t h e d i s t r i c t showing t h e i r n a t u r a l l i w a g e s

but a l s o a b lue p r i n t f o r t h e s p e c i f i c ac t ion by a l l t h e

f inancia l i n s t i t u t i o n s i n t h e d i s t r i c t . For t h i s purpose

a few representa t ive blocks were chosen on t h e b a s i s of

na tura l d iv is ions f o r undertaking t h e in-depth s t u d i e s

(by dividing t h e d i s t r i c t i n t o var ious homogeneous

regions, and from each region one block was chosen whioh

had t h e dominant c h a r a c t e r i s t i c s of t h e region) , I n

addi t ion t o t h i s , o ther information avai lable from t h e

block and d i s t r l c t headquarters was obtained and used.

The c r e d i t plans were f i n e l i s e d by aggregating t h e

various block estimates. The s u p e r i o r i t y of t h i a type

waa t h a t t h e eoonomics of t h e sohemes were incorporated

i n t h e plan. It was a l s o c l e a r t h a t t h e es t imates were

exclusive of margin. The speciality of t h i s methodology

was t h a t while es t imat ing t h e c r e d i t needs of a p r o j e c t ,

t h e eBcalsting e f f e c t s were a l s o t & e n i n t o cons idera t ion

i n addi t ion t o t h e e x i s t i n g absolute needs. The o r e d i t

p lan period was synohronised with t h e F i f t h Five Year Plan,

but t h e year-wise and bank-wise break-up d e t a i l s were not

indica ted i n t h e plan. They were t o be decided by t h e

D i a t r i c t Consultative Committee. The plan included

t h e l i s t of c e n t r a l v i l l a g e s and f o c a l point8 i n t h e

representa t ive blocks where departmental s t u d i e s were

conducted. I t a l s o mentioned t h e f i n a n c i a l and human

resouroes gap and t h e i n f r a - s t r u c t u r a l gap f o r t h e

auocessful implementation of t h e plan. Tho developmental

a c t i v i t i e s and schemes sub3eot t o t h e improvement of t h e

inf ra-s t ruc tura l f a c i l i t i e s were elaborated i n the

"Perspective Plan". This method could introduce inno-

va t ive methodological approaches with t h e necessary

modifications t o s u i t t h e requirements of t h e d l s t r i o t

which a r e s i t u a t e d i n h i l l y t e r r a i n s and dense f o r e s t s .

Implementation of D i s t r i c t Credi t Plans

The f i r s t s e t of D i s t r i c t Credit Plans was

f i n a l i s e d and launched by 1978 throughout t h e oountry.

These plans, however r e f l e c t e d s i g n i f i c m t d i f ference8

among themselves i n regare t o approach, methodology

e tc . Though considerable e f f o r t s were put i n by Lead

Banks i n t h e i r preparation, t h e d i s t r i c t c r e d i t plans

could not f u l l y serve t h e purpose. The major gain i n

t h i s exercise, however, was t h e awareness of t h e

problems of o r e d i t planning t h a t it crea ted amongst

a l l concerned.

The f i r s t round of d i s t r i c t c r e d i t plans was

terminated by Reserve Bank of India a t t h e end of 1979

and f r e s h guidel ines were issued f o r t h e second round

of d i s t r l o t c r e d i t plans 1980-82 indica t ing t h e objac t ives ,

contents, methodology f o r tb eat imat ion of c r e d i t needs,

modal i t ies t o be followed, e to . With t h e s h i f t i n

emphasis t o t h e block a s a u n i t of planning t h e need f o r

block l e v e l c r e d i t planning and adopt ion of blocka a s

f o c a l points became necessary. Accordingly, it was

envisaged i n t h e new guidel ines i n March, 79 t h a t t h e

c r e d i t out lay should be presented i n t h e d i s t r i c t c r e d i t

plan not merely eeotor-wise, scheme-wise and bank-wise

but a l s o block-wise.

Keeping i n view t h e experience gained and

suggestions rece ived from ver ioua q u s r t e r s , t h e Reserve

Bank of India i ssued f r e s h guidel ines i n February,l982

f o r t h e t h i r d round of D i s t r i c t c r e d i t p lans f o r 1983-85.

The f o u r t h round of D i s t r i c t w e d i t p lans envisaged

prepera t ion of p lans f o r a per iod of 3 yeara from

January ,1988 t o December,l990.

Though c r e d i t planning under t h e Lead Bank

Scheme has c o n t r i b u t e d t o a co-ordinated approach t o

some extent on t h e p a r t o r t h e lending agenciss i n

meeting t h e o r e d i t requirements, f o r t h e ef feot ive

g r a s s m o t l e v e l implementation of development schemes,

t h e need has a r l s e n t o t r a n s l a t e t h e D i s t r i c t c r e d i t

p lan i n t o micro p lans f o r amaller uni ts .

Annual Action Plans

A syetem of preparing Annual Action Plans under

D i s t r i c t Credi t Plan was a l s o in t roduced and t h e f i r s t

such plan was launched i n 1980. On t h e b a s i s of c r e d i t

p lan , t h e l e a d bank of each d i s t r i c t prepares an Annual

Action Plan f o r t h e district. This formed t h e b a s l s

f o r t h e i n t e g r a t i o n of block development p lans wi th

c r e d i t plan. I n t h e course of t h i s process , t h e bene-

f i c i a r l e s under v a r i o u s schemes inc luding SFDA, SC and

BC Corporation e t c . , were i d e n t i f i e d by t h e block deve-

lopment a u t h o r i t i e s and e n t r u s t e d t o v a r i o u s banks f o r

f i n a n c i a l a s s i s t a n c e .

The second round of Action Plans cover ing t h e

per iod upto March 1990 were introduced a s a measure of

improving t h e o p e r a t i o n a l e f f i c i e n c y of banks. Banks

have taken v a r i o u s measures t o implement t h e s e p lans .

The progress i n t h e implementation i s reviewed quar-

t e r l y wltti t h e concerned Chairman and Senior Execut ives

of Public Sector Banks. As a r e s u l t of t h e s e p lans

t h e r e has been a p e r c e p t i b l e improvement i n v a r i o u s

a r e a s l i k e customer s e r v i c e , house-keeping,organisa-

t i o n a l and c o n t r o l arrangements, c r e d i t adminis t ra t ion ,

p r o f i t a b i l i t y and s t a f f product iv i ty .

Recent development of In t roduct ion of S e r v i c e

Area Approach of bank branches f o r r u r a l development by

Reserve Bank of India has brought a new dimension i n

r e l a t i o n t o micrc-level o r e d i t planning. This repre-

s e n t s another e f f o r t towards d e c e n t r a l i s a t i o n of c r e d i t

planning f o r t h e r u r a l s e c t o r .

This approach aims a t Planning from below i . e . ,

t h e v i l l a g e l e v e l l 7 and forgYng an improved l i n k between

bank c r e d i t i n t h e r u r a l s e c t o r and ~ t s obJeot ives ,

namely increas ing produotion, produot iv i ty and income

l e v e l s of t h e r u r a l population. Each bank branch w i l l

be assigned 15-20 v i l l a g e s speci f led areas where they

a r e expected t o impart a developmental o r i e n t a t i o n and

t o enable it t o concentra te on productive lending,

leading t o t h e development of t h e assigned area. A

Blook Level Bankera Committee were a l s o formed t o

oo-ordinate t h e a c t i v i t i e s of t h e banks and t h e government

o f f i c i a l s . This committee would be r e q u i r d t o cons lder

t h e c r e d i t plans of a l l t h e branches and t h e i r aggregation

i n t o a block c r e d i t plan and t o review t h e progress of

implementation of block c r e d i t plan and t h e performance

of each branch i n r e l a t i o n t o i t s branch c r e d i t plan.

The block c r e d i t plans were expected t c be f i n a l l y

aggregated i n t o t h e d i s t r i c t c r e d i t plans.

17. NABAID, 'Deoentralised Credi t Planning', Annual Action Plan 1988-89, p.29.

PERFORMANCE BUDGETING

The t e a k of ensur ing lending programmes t o be

i n consonance wi th t h e commitments under t h e d i s t r i c t

c r e d i t plan, r e q u i r e s a well def ined i n t e r n a l planning.

The performance budgeting i s a t o o l a v a i l a b l e f o r t h e

banks t o h e w t h i s i n t e r n a l planning t o achieve t h e

d e s i r e d o b j e c t i v e s . The term 'budget ing ' means t h a t

it i s an expected p lan of v a r i o u s a c t i v i t i e s , wherein

t h e brench i s p laying a v i t a l r o l e . I t may e i t h e r be

a long term o r a s h o r t term budgeting. The long-term

budgeting i s known a s perspect ive p lan and it i s d r a m

wi th a view t o a s s e s s i n g t h e growth c e n t r e s s o as t o

enable the o r g a n i s a t i o n t o s t r e n g t h e n and provide

adequate suppor t t o t h e v a r i e d a r e a s of opera t ions .

And a l s o induce new innovat ions a t t h e branches, so

a s t o r e a l l s a t h e n a t i o n a l o b j e c t i v e s and b r l n g home

t h e b e n e f i t s t o t h e common man. The s h o r t term p l a n

i s an annual p lan s p e l l i n g out what t h e branch is going

t o do during t h e next one year per iod . To be rn a nut

s h e l l J t h e performance budgeting enables t h e banks t o

t r a n s l a t e t h e i r buainess p lan i n t o short-term a c t i o n

programmes and ensure t h e i r a t ta inment . The performance

budgeting w i l l t a k e c a r e of t h e fo l lowing commitments

made under d i s t r i c t c r e d i t plan viz.,I8

( 1 ) The t a r g e t s under crop loan and short-term loene

under Agriculture would be the t o t a l amount t o be

disbursed i n t h e terminal year of the plan.

(2 ) The t a r g e t s under term loans would be the t o t a l

amount t o be disbursed during the plan period.

( 3 ) The t a r g e t s under workin8 c a p i t a l loans would be

the t o t a l l i m i t s t o be i n force a t the end of t h e

plan period.

I f t h e performance budgeting f a i l s t o take care

of the commitmenti made under D i s t r i c t Credit I'lan, f i x i n g

up of the r e s p o n s i b i l i t i e s of implementing the D i s t r i c t

Credit Plan commitments t o the individual branches and

the proper phasing out of the commitments w i l l not be

possible.

SUMMARY - With a vlew t o keeping in tune t o the changes

i n the socio-economic and p o l l t i c a l spheres ' a rea approach',

suggested by t h e Study Croup, resul ted i n a scheme c a l l e d

the Lead Bank Scheme i n 1969. It was endorsed by t h e

18. B.S.Damodar, D i s t r i c t Credit Plan and Performance Budgeting, PI-, 1979, p.bO.

Nariman Committee. The Lead Bank Scheme was dealgned

t o enable banks t o assume t h e lead r o l e i n a l l t h e

d i s t r i c t s i n t h e country except the metropoliton c e n t r e s .

The schema was expected t o i d e n t i f y the unbanked c e n t r e s >

a s s e s s t h e c r e d i t gaps and absorpt ion capaci ty , formula te

v i a b l e and bankable schemes t o e f f e c t s t r u c t u r a l and

procedural changea i n banking s e c t o r and t o develop

oo-operatron and oo-ordination among t h e f i n a n c i a l and

non-financial agencies inc luding d i s t r i c t adminis t ra t ion .

I n t h e l i g h t of t h e avowed c b j e v t l v e s var ious funct ions

have been aasignad t o a bank designated a s lead bank i n

t h e d i s t r i c t . They include:

1. Conducting economlc s u r r e y s ;

2. prepara t ion of c r e d i t p l a n s ;

3 . Conducting p e r i o d i c a l surreys ;

4 . Co-ordinating t h e e f f o r t s of a l l c r e d l t i n s t i t u t i o n s

i n t h e d i s t r i c t ;

5. F'roviding dynanlc l e a d e r s h i p t o o t h e r c o n s t i t u e n t

member u n i t s ;

6. Exchange of information on matual i n t e r e s t ;

7 . Establ is i i lng guidel ines , wipingout t h e regional

imbalances i n t h e banking development, and

8. Act a s innovat ive l e a d e r e t c .

As a f i r s t phase e l l t h e (338) d i s t r i c t s i n t h e

country ( a t present 445) have been a l l o t t e d t o 25 banks i n

1969. In order t o provide orgenisa t ional s t r u c t u r e t h e

D.C.Cs were began t o form i n 1971, i n the second phase.

The preparation of D i s t r ~ c t C r e d l t Plans was s t a r t e d i n

t h e 3rd phase and i n ttm 4 t h and 5 t h phases t h e second,

t h i r d and f o u r t h rounds of L i s t r i o t Credi t Plans wi th

t h e i r Annual Action Plans. The a l l o c a t i o n of d i s t r i c t s

was based on the cons idera t ions such as t h e d i s t r i c t s ,

the adequacy of resources e tc . Phe a l l o t a e n t of d i s -

t r i c t s t c var ious lead banks was i n conformity wi th t h e

guide l ines suggested. The i n i t i a l surveys were conducted

wl th a view t o assess ing the p o t e n t i a l i t i e s of the d i s -

t r i c t s from t h e i r agro-climatro, physiogrephio and sooio-

economic conditions. Besides, the surveys a l s o attempted

t o a r r ive a t the Credi t needs of a g r ~ c u l t u r i s t s by adopt ing

t h r e e Cadgil study group methods, Rural Credi t Review

Committee method and crop loan method, fallowed by t h e

indepth surveys f o r evolving programmes and s t r a t e g i e s

of developrent on the b a s i s of l o c a l conditions and

p o t e n t i a l i t i e s . One of the main t a s k s under the lead

bank scheme was 'Credi t Planning' . I t was expected t o

es t imate the c r e d i t gaps e x i s t l n g i n the economy of t h e

d i s t r i c t s and t o evolve schemes f o r f i l l i n g these gaps

i n oo-operation end co-ordination of o t h e r f i n a n c i a l

i n s t i t u t i o n s . The prepara t ron o f c r e d r t p lan has v a r r o d

s l f :n l f icant ly due t o t h e d i f f e r e n c e s i n t h e adopt lon of

metiiodolopirs by d l f f r r e n t banks. The a n a l y s l s of

d i f f e r e n t c r e d i t p lans prepared by t h e l e a d banks shows

a wide VRriatlon i n t t e ~ ~ ~ e t h o d o l o g l e s adopted by them.

However, every credlt plan was expected t o be dovet l i lcd

wi th d i s t r r c t developmert p lan and a l s o wlth t h e

performance budget.