The Centre's decision to restructure the Lead Banks to involve commercial and cooperative institutions is hardly surprising. Dissatisfaction with the working of these banks had frequently been expressed by the Government and also by the people whom they were designed to benefit.
Background of the Lead Bank Scheme
The scheme was evolved in 1969 to ensure the area approach in the development of banking. To enable the banks to play the leadership role in an effective manner, all the districts, except the metropolitan towns and the Union Territories, were allotted among the public sector banks and three selected private institutions. Lending to priority sectors was to be stepped up, growth centres were to be identified, and credit gaps located.
Role and Performance of Lead Banks
The Lead Banks could also play the role of promoters in coordination with other financial institutions and state government agencies. Although they have been successful in branch expansion activity by identifying the growth area in rural regions, their performance in formulating development programmes has been below the mark.
Pranab Mukherjee, Minister of State for Revenue, informed the Rajya Sabha last January that the Reserve Bank was considering the recommendations of the Study Group which assessed the Lead Banks' progress in Gujarat and Maharashtra. The Group suggested several guidelines to make their operations effective.
Issues and Solutions
One explanation for the Lead Bank Scheme's lack of solid achievement was the duplication of effort. There have been too many financial institutions entrusted with the same mission. The restructuring aims to address this by involving more institutions and streamlining operations.
