Lead Bank Scheme

The Lead Bank Scheme was launched by the RBI in 1969 as an area approach for
providing banking facilities in rural areas. The LBS was recommended by D R Gadgil study
group that pioneered the idea of providing social banking in the post-independence period.
Under LBS, every district across the country would be assigned to a commercial bank. The
bank should have major presence in that district to do the work of the Lead Bank. The lead
bank makes surveys and makes loan facility to various sectors.

The study group headed by Prof.G.R.Gadgil, then Deputy Chairman of the Planning
Commission suggested an area approach for banking development. It recommended that each
commercial Bank be allocated districts, so as to take a leading role in its respective district as
regards banking development. The study group felt that this step would help in extending
institutional credit on easy terms to the hitherto neglected sectors, weaker sections of the
society and backward areas.

After the nationalization of 14 Major Commercial Banks, the Reserve Bank of India
appointed a Committee of Bankers, headed by F.K.F. Nariman, to evolve a co-ordinate
programme for providing banking facilities to the under banked districts of the country. The
committee, in its report submitted to the Reserve Bank in November 15,1969, recommended
the setting up of 'Lead Banks' in each district. The Nariman committee recommended that
Banks should be allocated specific districts, where they would take the lead in surveying the
potential of banking development, in extending branch expansion and extending credit
facilities. The Reserve Bank of India, after careful consideration of the recommendations of
the Gadgil study group and Nariman Committee, gave final shape to the Lead Bank Scheme
towards the end of 1969.

Objectives of Lead Bank Scheme

Under the scheme, Lead Banks shared the responsibility of surveying and developing
the banking potential of all the districts. Lead Banks were expected to assume the role of
catalytic agents of economic development in their respected lead districts. They were
expected to serve as leaders to bring about a co-ordination of co-operative banks, commercial
banks and other financial institutions in their respective districts in the interest of district
development. This is a very vital role in which the banks are required to associate and align
their operations with planned regional development.
The close involvement of the Lead Bank with a particular area will not only result in
deposit mobilization but also in the expansion of finance to agriculture and small industries.
The following important benefits were expected to flow from the scheme.

1. The whole country would be served by a well-knit system of commercial and co-operative
banking.
2. Branch expansion, supervision and guidance would become effective.
3. A dynamic relationship between commercial banks, co-operative credit institutions and
government authorities at the district level would evolve.
4. Major constraints impeding the development of the districts economy would be identified
and the Lead Bank would induce the appropriate agencies to remedial action.
Functions of the Lead Bank

Reserve Bank of India spelt out the following functions to be performed by the Lead
Bank.
1. To survey the resources and potential for banking development in its district.
2. To survey the number of industrial and commercial units, farms and other
establishments which do not have bank accounts, or which depend primarily on money
lenders, increasing the resources of such units by additional production through help
from the banking system.
3. To examine the facilities for marketing of agricultural produce and industrial
production, storage and warehousing and the linking of credit with marketing in the
district.
4. To study the facilities for stocking of fertilizers and other agricultural inputs and
repairing and servicing of equipment.
5. To recruit and train staff for offering advice to small borrowers and farmers in the
priority sectors and for the follow-up and inspection of the end use of loans.
6. To assist other primary lending agencies
 Kisan Credit Card
The Kisan Credit Card has emerged as an innovative credit delivery mechanism to meet the
production credit requirements of the farmers in a timely and hassle-free manner. The scheme
is under implementation in the entire country by the vast institutional credit framework
involving Commercial Banks, RRBs and Cooperatives and has received wide acceptability
amongst bankers and farmers. The broad guidelines of the revised scheme are as follows:

Objectives/Purpose
Kisan Credit Card Scheme aims at providing adequate and timely credit support from the
banking system under a single window to the farmers for their cultivation & other needs as
indicated below:
a. To meet the short term credit requirements for cultivation of crops
b. Post harvest expenses
c. Produce Marketing loan
d. Consumption requirements of farmer household
e. Working capital for maintenance of farm assets and activities allied to agriculture, like
dairy animals, inland fishery etc.
f. Investment credit requirement for agriculture and allied activities like pump sets,
sprayers, dairy animals etc. Note: The aggregate of components a. to e. above will form
the short term credit limit portion and the aggregate of components under f will form the
long term credit limit portion.
Eligibility
All Farmers – Individuals / Joint borrowers who are owner cultivators
Tenant Farmers, Oral Lessees & Share Croppers
SHGs or Joint Liability Groups of Farmers including tenant farmers, sharecroppers, etc.

Disbursement :
The short term component of the KCC limit is in the nature of revolving cash credit facility.
There should be no restriction in number of debits and credits. However, each instalment of
the drawable limit drawn in a particular year will have to be repaid within 12 months. The
drawing limit for the current season/year could be allowed to be drawn using any of the
following delivery channels.
a) Operations through branch
b) Operations using Cheque facility
c) Withdrawal through ATM / Debit cards
d) Operations through Business Correspondents and ultra thin branches
e) Operation through POS available in Sugar Mills/ Contract farming companies, etc.,
especially for tie-up advances
f) Operations through POS available with input dealers
g) Mobile based transfer transactions at agricultural input dealers and mandis

What are the benefits of KCC Scheme?

a)Simplifies disbursement procedures. b) Removes rigidity regarding cash and kind. c) No
need to apply for a loan for every crop. d) Assured availability of credit at any time enabling
reduced interest burden for the farmer. e) Helps buy seeds, fertilizers at farmer’s convenience
and choice. f) Helps buy on cash-avail discount from dealers. g) Credit facility for 3 years –
no need for seasonal appraisal. h) Maximum credit limit based on agriculture income. i) Any
number of withdrawals subject to credit limit. j) Repayment only after harvest. k) Rate of
interest as applicable to agriculture advance. l) Security, margin and documentation norms as
applicable to agricultural advance.
Self Help Groups (SHGs)

A self-help group has been defined as a small and formal association of poor having
preferably similar socio-economic background and who have come together to realise some
common goals based on the principle of self-help and collective responsibility.
The Self Help Group movement in India has gained a momentum in recent years. The
promotion of self-help groups in India began more formally in 1992 with the launch of the
SHG-Bank Linkage Programme by National Bank for Agriculture and Rural Development
(NABARD).
The programme’s main aim was to improve rural poor’s access to formal credit
system in a cost effective and sustainable manner by making use of SHGs. The invention of
Self-Help Group is a boon for the small farmer in general and village women in particular. It
has been responsible for bringing in a qualitative change in the lives of thousands of people.
Under Self-Help Group, banks are expected to provide credit to the SHGs against group
guarantee and members of the group stand as collective guarantors. Banks allow the members
of the SHGs to decide on which members of the group shall borrow and how much, and the
methodology of repayment. Normally, SHGs loans are term loans wherein the members are
expected to repay the loans in regular instalments over a period of time. In India most
farmers, especially small farmers and marginal farmers neither have title of the land nor have
any collateral security. As a result, they fail to get credit from commercial banks. In this
situation, SHGs help them to get credit without any hassles.

South based NGO, Sri Kshetra Dharmasthala Rural Development Project (SKDRDP)
has been promoting SHGs of the small farmers for more than two decades and helping them
with credit facilities for their farming operations. This movement popularly known as
pragathi bandhu groups in Karnataka state has helped more than one and half million farmers
directly or through their family members who are members of the SKDRDP promoted SHGs.
SKDRDP sources bulk loans from commercial banks and lends them to SHGs for
undertaking their farming operations. The unique feature of the SKDRDP is that SHGs
members have to repay in weekly instalments. This uniqueness encourages farmers to go for
subsidiary activities like dairy farming, vegetable cultivation, floriculture, or pure daily wage
labour so that they can earn money every week to repay loan. This scheme of repayment has
not only help farmer to repay loan easily but also help them thinking innovative.

Realising the potentiality of the SHGs, the National Bank for Agriculture and Rural
Development Bank (NABARD) is now actively facilitating promotion of Joint Liability
Groups (JLGs) of farmers for providing necessary credit through JLGs. Commercial banks
and Non-Government Organisations (NGOs) are given incentives for promoting JLGs and
credit linking them with bank. Department of financial services, ministry of finance,
government of India issued a directive in November 2011, wherein advising bank to provide
cash credit or revolving fund to SHGs instead of term loans. This will act as a twin edged
sword. On the one hand, members of the SHGs will get loan easily and on the other hand it
can give freedom to the group to decide on the priorities of the members and lend to them on
its own terms without having to take guidance from the banker.
Scheduled Commercial Banks: (Nationalized 1969)

Commercial banking on western styled started in India in the beginning of 19th century.
Commercial banks are important financial intermediaries for promoting and mobilization
savings and allocating investment among productive sectors like agriculture by providing
short term and medium term loan up to 10 years. In 1969, 14 major commercial banks were
nationalized (at present 29 banks nationalized) there are 53123 branches of which about 60%
are in rural areas. This banks are financing to farmers, land less labourers, artisan and
economically weaker section of the society.
After nationalization, there has been substantial increase in the involvement of commercial
banks in agril. Sector and emerged as an important source of agricultural finance.The
commercial banks collected their resources in the shape of deposits, paid up capital and
borrowings from the R.B.I. and utilize them by way of loans.

Regional Rural Banks (RRBs):

Started in 1975 under ordinance of president of India. These banks are financing the rural
people through their branches in rural areas. These banks are formed by the Central
government and Nationalized Commercial Banks. The main objective of RRBs is to provide
credit to the weaker section- small and marginal farmers, landless labourers, artisans and
small entrepreneurs by development of village areas.
Capital Structure:
The capital of every RRB was Rs. 1 crore and the issued capital was Rs. 25 lakhs. 50 per cent
of the issued capital being subscribes by the central Government, 15 per cent by concerned
state Government and 35 per cent remaining part by the sponsoring bank.
Objective:
According to regional rural banks act 1976, the RRBs were to set up mainly with a view to
develop the rural economy by providing for the development of agriculture, trade, commerce,
industry and other productive activities in the rural areas. These banks aimed at providing
credit and other facilities particularly to the small and marginal farmers, agricultural
labourers, rural artisans and small entrepreneurs.
Management:
The management of each RRB is being done through a nine-member Board of Directors
headed by a chairman. The strength of the Board could be raised up to 15 with the approval
of Government of India which appoints its Chairman. The central Government nominees
three directors (in addition to chairman), the State Government two director, while
sponsoring bank nominates the remaining three directors.
Banking Business:
Every RRB status of scheduled commercial bank and has been empowered to mobilize
deposits and to grant short term loans directly (whether individually or in groups) only to
small and marginal farmers, agricultural labourers, rural artisans, small entrepreneurs. They
can provide loans both for productive as well as consumption purpose.
SCALE OF FINANCE:

The cost of cultivation, which can be stated as the expenses for successful raising of a crop
per acre or hectare or unit area would indicate the average expenses, inputs such as fertilizers,
insecticides, pesticides irrigation, supervision, harvesting and marketing of the crops. The
factors of cost of cultivation would clearly indicate that the part of the expenses are required
to be incurred by the farmers in stages; while part of the expenses are required by them for
purchase of inputs from the market.

Definition:
Depending upon the total cost of cultivation the funds considered by bank as loans for
various purposes is known as Scale of Finance.

Scale of finance is fixed for annual, perennial crops and livestock also.

Livestock will have fixed costs of finance and they are termed as unit costs.
The unit varies with the type of livestock. Ex: for milch cattle the unit refers to two animals,
for sheep and goat a minimum of 10 animals and for poultry a minimum of 500 birds.

Factors influencing the scale of finance:

1. Type of the crop: It varies from crop to crop.
2. Nature of the crop: Within the same crop between the improved varieties and high yielding
varieties (HYVs) the scale of finance differs.
3. Season: Scale of finance differs with season for the same crop.
4. Type of land: Based on the type of the land i.e. irrigated or dry the scale of finance differs
with the same crop.
5. District/Area: For the same crop the scale of finance varies from district to district.

The Banks have circulated to their officers the scales of finance on various crops which
should not rigidly apply under all sets of conditions. The loan amounts considered by banks
are need based to meet the cost of the actual cultivation of various important crops.

Disbursement:

The disbursement procedures of loans aim at ensuring the end utilization of funds. Since the
resources at the disposal of the cultivators and the loans/ credits raised by them can not meet
their demands, utilization of funds lent for other than intended purpose is not uncommon due
to socio-economic compulsion and lack of commercial consciousness. Care should be taken
to disburse the cash and kind components in such a manner that they are not misutilised by
the beneficiaries. It is necessary to ascertain the comparative rates of the inputs, preferably
from the price list of various inputs published and circulated by the manufacturing
companies.

Supervision:

It is necessary to inspect crops at various stages of growth to ascertain crop conditions,

probable yields, occasional damages etc. The general stipulation to inspect the farms for the
end utilization of funds may not be possible in view of the large number of accounts and
simultaneous operations carried out by the farmers in a homogeneous cropping pattern.
Margin:

The margin in short –Term crop loans varied from 10 to 25 per cent. In deserving cases,
margin is also required to be waived. It is also necessary to waive the margin in case of small
and marginal farmers who are not in a position to raise the necessary margin.

Rate of Interest:

The practice of applying the rate of interest varies from Bank to Bank and is governed either
by the land holding or purpose of loan or its quantum. It is advisable and rational that the rate
of interest should be according to the land holdings.

Securities:

The number of documents, nature of securities and the cost thereof vary from Bank to Bank
and from State to State.