Lead Bank Scheme

Lead Bank Scheme – Objectives, Functions, Advantages, Disadvantages, And More

Lead Bank Scheme:- Introduced by the Reserve Bank of India, the Lead Bank Scheme. Providing banking services and ensuring financial inclusion were the goals. Serving all societal segments was the plan’s goal. Establishing a lead bank in each Indian district was the goal of the Scheme. With other banks and financial institutions in the region, the lead bank would coordinate. The goal was to guarantee that banking facilities were used effectively and efficiently. Enhancing loan flow to priority industries was another goal of the program. The program was designed to encourage rural development.


What Is a Lead Bank?

A bank that manages loan syndication arrangements is known as a lead bank. For this function, which includes finding the syndicate members and settling on the financing arrangements, the lead bank gets paid an extra fee. The lead bank represents an underwriting syndicate in the Eurobond market as an agency.

Lead Bank Scheme

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Objectives of the Lead Bank Scheme

The table below explains the goals of the Lead Bank Scheme:

Objectives of the Lead Bank SchemeImportance/ AdvantagesMeans of Achievement
Identify unbanked and underbanked regions in districtsImportant to extend banking facilities to all regionsEconomic survey and identification of regions
Evaluate physiographic, agro-climatic, and socio-economic conditions through economic surveyNecessary to understand the conditions and needs of the regionConducting an economic survey
Remove regional imbalances through appropriate credit deploymentEssential to promote balanced developmentAppropriate credit deployment
Extend banking facilities to unbanked areasImportant to ensure financial inclusionEstablishment of banking facilities in unbanked areas
Address credit gaps in various sectors through a credit planNecessary to address the needs of various sectorsDevelopment and implementation of a credit plan
Identify economically viable and technically feasible schemesEssential to ensure effective use of creditIdentification and evaluation of schemes
Implement structural and procedural changes in the banking sectorNecessary to improve banking operationsIntroduction of structural and procedural changes
Foster cooperation among financial and non-financial institutionsEssential for coordinated developmentPromotion of cooperation between financial and non-financial institutions
Promote overall development of the districtsEssential for overall growth and progressImplementation of development programs

Functions of Lead Bank Scheme

  • Coordination: Banks can more easily coordinate thanks to the Lead Bank Scheme.
  • Credit planning is the process of creating and carrying out district credit plans in order to guarantee a fair and organized distribution of credits.
  • Priority Sector Lending: The program places a strong emphasis on the flow of credit to smaller businesses, the agricultural sector, and the most vulnerable groups in society.
  • Financial Inclusion: By providing banking services to underserved and unbanked communities, lead banks play a critical role in advancing financial inclusion.
  • Credit Monitoring: They keep an eye on the availability of credit and assess how well various government initiatives related to credit are doing.
  • Stakeholder Engagement: To guarantee the successful execution of development projects, lead banks interact with a range of stakeholders, such as governmental organizations, neighborhood associations, and self-help groups.
  • Training and Capacity Building: They run training courses to improve the knowledge and abilities of bank employees and authorities.
  • Assessment and Reporting: The Reserve Bank of India (RBI) and other pertinent authorities receive regular reports from lead banks that assess the effects of credit disbursal.
  • Dispute Resolution: By assisting in the resolution of issues pertaining to credit and financial services, they foster an atmosphere that is favorable to business.
  • Encouraging Financial Literacy: Prominent banks launch programs to encourage financial literacy and inform the public about the range of banking services and products available.

Advantages of Lead Bank Scheme

  • The Lead Bank Scheme encourages financial institutions and banks to work together and coordinate.
  • It guarantees more efficient use of banking resources and encourages growth that is inclusive.
  • The program assists in directing loans toward underprivileged and priority sectors.
  • It makes it easier to find and address regional differences in credit availability and banking services.
  • Comprehensive banking services, particularly those for marginalized and rural populations, can be made available to all segments of society through the Lead Bank Scheme.
  • It guarantees a sufficient supply of finance, which promotes the growth of productive sectors.
  • Through encouraging banking outreach in isolated and underbanked communities, the program promotes financial inclusion.
  • Through the coordination of financial institutions’ activities, government programs and plans are effectively implemented.
  • This advances regional economic development and advances national development as a whole.
  • It supports the district-level tracking and assessment of credit disbursement and development program progress.
Lead Bank Scheme

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Disadvantages/ Problems of the Lead Bank Scheme

The following are drawbacks and issues with the Lead Bank Scheme:

  • The cooperation and coordination of banks and other financial institutions is necessary for the Lead Bank Scheme to be effective.
  • However, because of problems with coordination, there are frequently delays and inefficiencies.
  • The prompt issuance of credit to borrowers may be impacted by these delays.
  • The Lead Bank Scheme’s district allocation process has run into issues.
  • There are differences in banking facilities and credit availability because some districts have been left out or have been wrongly classified.
  • ‘Lead Bank’ can be a perplexing term, particularly when it comes to opening bank branches.
  • This lack of clarity in the goals and scope can lead to difficulties with implementation and inefficiency.
  • This may lead to differences in how credits are distributed and development initiatives are carried out.
  • The Lead Bank Scheme has disregarded the importance of cooperatives as a source of institutional finance.
  • This oversight, especially in rural areas where cooperatives are more common, can result in inefficiencies, differences in the distribution of loans, and inconsistencies in the execution of development programs.

Usha Thorat Committee on Lead Bank Scheme

A high-power committee was constituted by the Indian government. Usha Thorat, a former deputy governor of the RBI, headed the committee. The group was tasked with making recommendations for changes to the Lead Bank Scheme. The goal of the reforms was to solve issues facing the banking industry. Among these difficulties are growing levels of autonomy and privatization.


The Lead Bank Scheme made a significant contribution to the financial inclusion and rural growth of India. Nonetheless, the plan ran into a number of difficulties. One major obstacle was insufficient infrastructure. Another challenge was a lack of cooperation among interested parties.

Lead Bank Scheme

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Q. When was India’s Lead Bank Scheme launched?

Ans- The Gadgil committee’s suggestion led to the launch of the lead bank project in India in 1969.

Q. What is the Lead Bank Scheme’s purpose?

Ans- It is the lead bank’s responsibility to direct and oversee credit institutions. Improving the flow of finance to priority industries is the goal. Rural and semi-urban areas are the main focus. The basic operational unit is the district.

Q. How do banks of lead become selected?

Ans- Generally, a district’s primary accountability falls to a bank. In rural locations, the bank ought to have a sizable branch network. The bank should also have sufficient resources in terms of money and personnel.

Q. In the Lead Bank Scheme, what is the RBI’s role?

Ans- The Reserve Bank of India (RBI) is responsible for overseeing and managing the Lead Bank Scheme. The lead banks receive instructions and guidance from the RBI. RBI ensures that the objectives of the program are fulfilled.

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