Banking reforms etched on global integration have the potential of distancing the socio-economic goals of the country, notwithstanding the 8.5-9% growth attained during the last three years. The recent review of priority sector requirements and fresh guidelines to banks issued by the RBI has to be reinforced with appropriate review mechanisms. In the broad scheme of things what it omitted to review was the working of Lead Bank Scheme (LBS), which had its focus in the 1970s on branch expansion in rural areas and in the 90s on Service Area Planning that was given a go-by post-2000.
The focus is shifting fast to ensuring financial inclusion and a host of other issues pertaining to credit for the farm and SME sectors. But the way the LBS is currently under implementation is not different from what it was two and half decades ago. The district collector as chairman witnesses a laborious and routine review of the targets set for government programmes like the SGSY, credit targets under SC Action Plan, Tribal Sub-Plan, identification of target groups by various agencies and non-implementation of targets for various reasons that get repeated meeting after meeting and with similar excuses. The District Collector depending on the situation exhorts the concerned agencies to show better performance for the next review meeting. The Credit Plans prepared invariably reflect a target hike from the previous year by certain minimum percentage. These plans are supposed to be dovetailed with the Potential Linked Plans (PLP) of Nabard introduced since the mid-1980s. But the Annual Credit Plans of the Lead Bank and the PLPs of Nabard are two independent exercises. The District Planning Officer of the state government outlines the plan for sectoral and infrastructure development.
Plan preparation in isolation by different agencies is a wasteful exercise. As a first step, it is necessary to reinforce close coordination between district planning authorities and banking institutions operating in a district on one side and between Nabard and the Lead Bank on the other. Duplication of efforts in credit plan preparation should be avoided by empowering the plan team at the district level appropriately.
The system of lead bank scheme and associated district-level coordination committees of bankers has apparently become inactive. The lead bank scheme needs to be re-invigorated with clear guidelines on respecting the bankers? commercial judgements even as they fulfil their sectoral targets. Various committees like Block Level Bankers Committee, District Coordination Committee and District Review Committee seldom function with all seriousness. LBS Information System does not have any checks and balances and does not agree with several other returns relating to Priority Sector Credit.
The Lead Bank/Lead District Manger, to be effective, should first of all not be one of the sparables; second, he should be well trained in plan preparation skills; third, he should be empowered to seek the required data and information on an on-going basis from the implementing agencies. Credit plan preparation is not either an aggregation of numbers or presenting incremental outlays. It is inextricably linked to the requirements of different clientele groups with specific focus on farm, SME sectors, weaker sections and SHGs. Farm Sector in its broad definition includes apiculture, aqua culture, sericulture, sylviculture and animal husbandry. Both in preparation and review the focus in farm sector should be on the vulnerable sections like the tenants, small and marginal farmers.
Similarly, SME sector has district focus and product focus; has artisans and crafts persons; has entrepreneurs of various hues; and its economic capacity is inextricably linked to externalities. Therefore, the LDM should only be given the task of coordinating the preparation and implementation of credit plans, given more authority and made accountable. It is but appropriate to consider these set of officers to be on deemed deputation to the Reserve Bank of India and given functional freedom. The District Development Manager (DDM) of Nabard should be a member of the Credit Planning team and it is time that Nabard dispenses with the preparation of PLP and utilise its planning skills as part of the team.
Financial inclusion in its wider definition of savings and thrift, credit and counselling should be part of the Credit Plan exercise. The Lead Bank Office should be equipped with essential staff and equipment to undertake the planning and monitoring exercise.
His line relationship with regional managers of all the banks becomes extremely important for this purpose. It is necessary, therefore, that the RBI quickly revitalises the entire Lead Bank Scheme from the above perspectives so that credit to the vulnerable results in enduring assets with recycling capabilities.
The issues that would need to be examined by the RBI can be summarised as follows: Structure, authority, coordination with banks and various government departments, plan preparation, information system and reporting mechanism.
?The writer is regional director, Professional Risk Managers? International Association, Hyderabad Chapter