RBI's Swaminathan Advocates 'Bottom-Up' Approach For Banks In Credit Planning

LBS (Lead Bank Scheme), a framework that coordinates efforts among banks, financial institutions, and government, has evolved to align with India's developmental priorities, enhancing banking access and credit flow to vital sectors. RBI Deputy Governor Swaminathan J has stated that banks should use a "bottom-up" approach while creating loan plans to meet financial requirements for various sectors in districts.

Addressing a conference for lead district managers of Maharashtra last week, the Deputy Governor said the aspect of design and development starts with the credit plans, according to a RBI release. The Lead Bank Scheme (LBS) was developed in 1969 to coordinate the actions of financial institutions and the government.

"Credit planning should adopt a bottom-up approach to convey the needs of the centres and then design a plan best suited to address those," he said.

It is critical to realize that, while the goals should be aspirational in nature, they must also be realistic enough to be translated into action and represent local credit requirements, according to a senior Reserve Bank official.

He went on to say that in this day and age, with so much data and analytical models available, a data-driven empirical approach to credit plan creation is important. Such tools facilitate the development of tailored intervention solutions.

“The primary step of data collection should be through field surveys and not be substituted by just an academic understanding. The field surveys also enable to identify areas which are more in need of credit flow and have a better capability of servicing the loans. This should be the premise on which you formulate bankable schemes,” Swaminathan said.

The Deputy Governor also reminded the audience that figures reveal that around half of the Self-Help Groups (SHGs) have yet to be linked to official credit, and a considerable number of small and marginal farmers continue to lack access to bank funding.  Another segment of prospective borrowers that has been neglected is MSMEs, particularly those run by women.

"Therefore, when we adopt an empirical approach coupled with your on-ground experience for designing of a credit plan, the credit requirements of such segments can be effectively addressed through suitable Potential Linked Credit Plans as well as in block and district-level credit strategies," Swaminathan said.