Lead Bank Scheme and Service Area Approach: SLBC and DCC

The correct answer is B, 1969. The Reserve Bank introduced the Lead Bank Scheme in December 1969, a few months after the nationalisation of fourteen major commercial banks in July of the same year, so the year is easy to anchor to the nationalisation year. The scheme gave one bank the responsibility of coordinating banking development in each district of the country, outside the metropolitan areas. Option A is wrong because 1965 is before the National Credit Council itself existed; the council was set up in 1968. Option C is wrong because 1975 is the year the regional rural banks were set up, under the Regional Rural Banks Ordinance. Option D is wrong because 1980 is the year of the second round of bank nationalisation, when six more banks were taken over. Papers frequently combine these four years in one question, so keep each one tied to its own event.

The correct answer is A, the Gadgil Study Group. The Study Group of the National Credit Council on the organisational framework for the implementation of social objectives, headed by Professor D. R. Gadgil, reported in 1969 that large parts of the country had no banking facility at all and recommended that credit be planned area by area, with a district as the unit. Option B is wrong because the Narasimham Committee reports of 1991 and 1998 dealt with banking sector reform, capital adequacy and prudential norms. Option C is wrong because the Tandon Committee of 1974 laid down norms for working capital finance and inventory. Option D is wrong because the Chakravarty Committee of 1985 reviewed the working of the monetary system. In this chapter two names must be kept apart: Gadgil for the area approach and Nariman for the allotment of districts to banks.

The correct answer is A, F. K. F. Nariman. After the Gadgil Study Group recommended the area approach, the Reserve Bank appointed a Committee of Bankers under F. K. F. Nariman, which agreed with the area approach and added the mechanism that gave the scheme its name: each district should be allotted to one bank, which would act as the leader and coordinate the work of all banks and development agencies there. The Reserve Bank accepted both reports and launched the scheme in December 1969. Option B is wrong because the R. V. Gupta Committee of 1998 dealt with agricultural credit delivery and simplifying crop loan procedures. Option C is wrong because the A. Ghosh Committee looked at frauds and malpractices in banks. Option D is wrong because M. Narasimham headed the banking sector reform committees of the 1990s. Gadgil and Nariman are the standard pair asked for this scheme.

The correct answer is A, the District Collector or District Magistrate. The District Consultative Committee is the working coordination forum of the district, bringing together all the banks operating there, the district administration and the development agencies, and it is chaired by the District Collector so that the administration and the banks sit together under one authority. Option B is wrong but is the usual trap: the Lead District Manager is the convenor of the committee, who calls the meeting, circulates the agenda and keeps the records, not its chairperson. Option C is wrong because the Reserve Bank's Regional Director attends state level meetings and oversees the scheme but does not chair the district forum. Option D is wrong because the convenor bank's head chairs the State Level Bankers' Committee. Remember the pattern: Collector chairs both district forums, the Lead District Manager convenes the District Consultative Committee and chairs the block committee.

The correct answer is A, the Lead District Manager. The Block Level Bankers' Committee is the lowest forum of the Lead Bank Scheme and exists so that the branches of a block, the block administration and the field level development agencies can settle practical questions of credit flow together. It is chaired by the Lead District Manager, the lead bank's officer for the district, and it is where the block credit plan is put together from the branch level plans. Option B is wrong because the Block Development Officer and other block officials attend as members but do not chair it. Option C is wrong because no branch manager chairs the forum; branch managers of all banks in the block are its members. Option D is wrong because the District Collector chairs the District Consultative Committee and the District Level Review Committee, which are at the district level and not at the block level.

The correct answer is A, 1977. The State Level Bankers' Committee was constituted in 1977 as the apex forum of a state, where all the commercial banks, the regional rural banks, the cooperative banks, the state government and the Reserve Bank meet to review credit flow and agree on the state's annual credit plan. One bank is designated the convenor bank for each state, its head chairs the meetings, and the committee meets quarterly. Option B is wrong because 1969 is the year the Lead Bank Scheme itself began; the state forum came eight years later. Option C is wrong because 1989 is the year the Service Area Approach was introduced at branch level. Option D is wrong because 2004 is the year the restrictive provisions of the Service Area Approach were withdrawn. For a Union Territory the matching body is the Union Territory Level Bankers' Committee.

The correct answer is A, April 1989. The Service Area Approach took effect from April 1989 and carried the logic of the Lead Bank Scheme down to the individual branch. Each rural and semi-urban branch was allotted a service area of villages and made responsible for surveying their credit needs and preparing a service area credit plan for them, while urban and metropolitan branches stayed outside the scheme. Option B is wrong because April 1969 is close to the Lead Bank Scheme year but that scheme began in December 1969 and worked at district level, not at branch level. Option C is wrong because January 1980 is near the second round of bank nationalisation, which is a different event. Option D is wrong because by 1999 the approach was already a decade old and under criticism for tying borrowers to a single branch.

The correct answer is B, 15 to 25. A branch's service area was drawn up of roughly fifteen to twenty-five villages, chosen on the twin tests of proximity and contiguity so that the cluster could actually be served and surveyed by the staff of one branch. The branch then conducted village surveys, estimated credit needs and prepared a service area credit plan, which fed into the block and district plans. Option A is wrong because a cluster that small would have left many villages unallotted and defeated the purpose of universal coverage. Option C and option D are wrong because clusters of thirty to sixty villages would have been impossible for a single rural branch to survey and serve, and the Reserve Bank's instructions never set numbers that high. The figure fifteen to twenty-five, the proximity and contiguity test, and the exclusion of urban branches are the three points asked about this approach.

The correct answer is A, government-sponsored schemes. By tying every village to one branch, the Service Area Approach had removed the borrower's choice: a farmer served badly by his service area branch could not take his account elsewhere, and competition between branches disappeared. In December 2004 the Reserve Bank therefore withdrew the restrictive provisions and allowed borrowers to approach any branch of their choice, while keeping the restriction for government-sponsored schemes, where a village has to be identified with a particular branch so that subsidy and beneficiary lists can be matched. Option B is wrong because export credit is governed by separate Reserve Bank guidelines and was never part of the service area restriction. Option C is wrong because gold loans are an ordinary secured advance with no area restriction. Option D is wrong because housing loans are largely an urban product and urban branches were always outside the approach. Branches kept their survey and planning duties even after 2004.

The correct answer is A, Usha Thorat. The Reserve Bank constituted a High Level Committee under its Deputy Governor Usha Thorat to review the Lead Bank Scheme after four decades, and the committee reported in 2009. It found the forums had become ritual meetings, and recommended that they concentrate on financial inclusion, that credit plans be drawn up keeping the state government's own plans in view, that the scheme be extended to metropolitan areas, and that banks prepare roadmaps for taking banking services to villages without them. Option B is wrong because C. Rangarajan chaired committees on financial inclusion and on the measurement of poverty, and was a Governor of the Reserve Bank. Option C is wrong because Raghuram Rajan chaired the committee on financial sector reforms of 2008 and later became Governor. Option D is wrong because Deepak Mohanty headed a committee on the medium term path to financial inclusion. The names are close, so attach each to its own subject.

The correct answer is A, NABARD. The National Bank for Agriculture and Rural Development prepares a Potential Linked Credit Plan for each district, estimating sector by sector how much credit the district can absorb, taking account of its soil, irrigation, cropping pattern, livestock, infrastructure and non-farm activity. The banks build their branch plans on that estimate, the Block Level Bankers' Committee aggregates them into a block plan, and the District Consultative Committee adopts the Annual Credit Plan. Option B is wrong because the Reserve Bank frames the policy and monitors the scheme but does not prepare district potential estimates. Option C is wrong because SIDBI refinances small industry and does not draw up district credit plans. Option D is wrong because the lead bank coordinates and consolidates the plan but works on NABARD's potential estimate rather than making it. The chain NABARD, branch, block, district, state is the point to remember.

The correct answer is B, it coordinates the credit planning of all banks in the district. The lead bank is a coordinator, not a monopolist. It prepares the district credit plan, convenes the district forums through its Lead District Manager, brings banks and government departments to one table, watches for blocks and villages left without banking and reports progress to the state government and the Reserve Bank. Option A is wrong because every bank remains free to open branches and lend in the district; nothing in the scheme reserves business for the lead bank. Option C is wrong because the lead bank is a commercial bank, generally a public sector bank and in some districts a private bank, while the Reserve Bank's regional office supervises the scheme from outside. Option D is wrong because the district central cooperative bank continues to work alongside and is itself a member of the district forums.