assignment of lead bank responsibility

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Lead Bank: What it is, How it Works, Applications

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest.

What Is a Lead Bank?

A lead bank is a bank that oversees the arrangement of loan syndication . The lead bank receives an additional fee for this service, which involves recruiting the syndicate members and negotiating the financing terms. In the Eurobond market, the lead bank acts in an agent capacity for an underwriting syndicate.

A lead bank is also known as a lead underwriter .

Key Takeaways

• A lead bank coordinates and oversees a syndicate for underwriting loans (bonds) or shares to be sold to investors.
• The lead bank typically receives a more generous amount of fees than syndicate banks due to its coordinating role and responsibilities.
• Lead banks are key for coordinating and marketing IPOs as well as large corporate debt offerings.

Understanding Lead Banks

A lead bank usually refers to an investment bank that manages the process of underwriting a security in conjunction with other banks, known as syndicate banks. In this sense, the lead bank can also be referred to as a lead manager or managing underwriter . A more general meaning of this term is simply the primary bank of an organization that uses several banks for several different purposes.

The lead underwriting bank will usually work with other investment banks to establish an  underwriter syndicate , and thereby create the initial sales force for a company's securities. These bonds or shares will then be sold to institutional and retail clients. The lead bank will usually be the one to assess the company financials and current market conditions to arrive at the initial value and quantity of shares to be sold. These securities often carry a hefty sales commission (as much as 6 to 8 percent) for the syndicate, with the majority of shares being held by the lead bank.

The Role of the Lead Bank in Loan Syndication

In loan syndication, multiple banks will work together to provide a borrower with the capital needed. Loan syndications generally form for corporate borrowing purposes, including for mergers , acquisitions , buyouts , and other capital projects. Situations that require loan syndication will usually involve a borrower who needs a large sum of capital that may be too much for a single lender to provide and/or outside the scope of this lender's risk exposure levels.

A lead bank, in this case, is often responsible for all aspects of the deal, including the initial transaction, fees, compliance reports, repayments throughout the duration of the loan, loan monitoring and overall reporting for all lenders within the deal. Lead banks of loan syndications may charge high fees because of the vast reporting and coordination efforts needed to complete and maintain loan processing. These fees can be as high as 10% of the loan principal.

At times the lead bank may rely on a third party and/or additional specialists throughout various points of the loan syndication or repayment process to assist with reporting and monitoring.

The Role of the Lead Bank in Securities Underwriting

In an initial public offering (IPO) or other forms of issuing securities, a lead bank may organize a group of underwriters, also called the underwriting syndicate, for the deal. As with a loan syndicate, the purpose of an underwriting syndicate is often to spread out risk and/or merge funds in a large deal.

Lead banks will assess an issuing company’s financials and current market conditions to arrive at an initial value and quantity of shares to be sold. Newly issued shares may carry a hefty sales commission for an underwriting syndicate (at times, nearly 6%–8%); however, the largest portion of shares will go to the lead bank.

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Background:

In October 1969, the study group lead by Prof. D. R. Gadgil (Gadgil Study Group) recommended the adoption of an ‘ Area Approach ‘ to evolve plans and programmes for the development of an adequate banking and credit structure in the rural areas. Further, under the chairmanship of Shri F. K. F. Nariman (Nariman Committee) a committee of bankers on branch expansion programmes of public sector banks in its report (November 1969), endorsed the idea of an ‘Area Approach’ recommending that each bank should concentrate on certain districts where it should act as a ‘Lead Bank’ in order to enable the Public Sector Banks to discharge their social responsibilities. The Reserve Bank of India introduced the Lead Bank Scheme in December 1969 based on recommendations of the above committees with the objective of enhancing the flow of bank finance to the priority sector.  Lead Bank Scheme was last reviewed by the High-Level Committee headed by Smt. Usha Thorat, the then Deputy Governor of the Reserve Bank of India in 2009.  The Usha Thorat Committee held extensive discussions with various stakeholders viz. State Governments, banks, development institutions, academicians, NGOs, MFIs, etc. and noted that the Scheme has been useful in achieving its original objectives of improvement in branch expansion, deposit mobilisation and lending to the priority sector, especially in rural/semi-urban areas. There was an overwhelming consensus that the Scheme needs to continue. The Lead Bank guidelines were issued by RBI to SLBC Convenor banks and Lead Banks for implementation based on the recommendations of the High-Level Committee. Based on the recommendation of the “Committee of Executive Directors” of the Banks to study the efficacy of the Scheme, and suggestions of all stakeholders RBI issued certain ‘action points’ to SLBC Convenors/Lead Banks and NABARD on April 6, 2018.

The Lead Bank scheme envisages every district across the country shall be assigned to a commercial bank that has a major presence in that district to perform the role of Lead Bank. The assignment of lead bank responsibility to designated banks in every district is done by Reserve Bank of India under a procedure formulated under the scheme. The leader bank initially conducts basic surveys in their respective lead districts and prepares district credit plans linked with the development programme with special emphasis on the development of the rural and backward areas. It would identify the places suitable for branch expansion at unbanked centers with emphasis on deposit mobilization and credit deployment.

It is obligatory on the part of all the commercial banks to achieve a credit deposit ratio of 60% in respect of their rural and semi-urban branches separately on an all-India basis. However, they have to take care that a wide disparity in the ratios between different States / Regions is avoided in order to minimise regional imbalance in credit deployment. As an agenda item, Lead Banks review the performance of banks under the respective District Credit Plan (DCP).   The DCP comprises the flow of credit to priority sector and weaker sections of the society,  assistance under Government sponsored schemes,    Grant of educational loans ,    Progress under SHG – bank linkage,    SME financing & bottlenecks thereof, if any, etc.

Fora under the Lead Bank Scheme :

Block Level Bankers’ Committee (BLBC)

The Block Level Bankers’ Committee (BLBC) prepares the block-level credit plans and coordinates between credit institutions and field level development agencies at the block level. It reviews the implementation of the Block Credit Plan and also resolves operational problems in the implementation of the credit programmes of banks. The Lead District Manager (LDM) of the district is the Chairman of the Block Level Bankers’ Committee. All the banks operating in the block including the Small Finance Banks, Wholly Owned Subsidiaries (WOS) of Foreign Banks, RRBs, the District Central Co-operative Banks, Block Development Officer, technical officers in the block, such as extension officers for agriculture, industries and co-operatives are members of the Committee. BLBC meetings take place at the interval of once in a quarter. The meetings are attended by all the branch managers of the banks in the particular block and enrich the discussions with their valuable inputs. District Development Manager (DDM) of NABARD also attends the meeting to ensure better and more meaningful discussions for the development of the Block. Controlling Heads of the banks and Lead District Officer (LDO) of the Reserve Bank of India (RBI) selectively attends the BLBC meetings. Representatives of Panchayat Samitis are also invited to attend the meetings at half-yearly intervals so as to share their knowledge and experience on rural development in the credit planning exercise. Payments Banks should also be invited to attend the meetings.

District Consultative Committee (DCC):

District Consultative Committee (DCC) is constituted by bankers as well as Government agencies/departments at the district level. The forum facilitates coordination in implementing various developmental activities under the Lead Bank Scheme in the district. The District Collector is the Chairman of the DCC meetings. Reserve Bank of India, NABARD, all the commercial banks including Small Finance Banks Wholly Owned Subsidiaries (WOS) of Foreign Banks, RRBs, Payments Banks, co-operative banks including the District Central Cooperative Bank (DCCB), various State Government departments and allied agencies are the members of the DCC. The Lead District Manager (LDM) convenes the DCC meetings at the quarterly intervals. The Director of Micro, Small and Medium Enterprises Development Institute (MSME-DI) in the district is an invitee in districts where MSME clusters are located to discuss issues concerning MSMEs. The lead district officer represents RBI. Although DCC meetings are likely to address the problems particular to the concerned districts, they invariably discuss some of the important areas which are common to all districts. Their main agenda will be review the progress made under financial inclusion plan (FIP),the specific issues hindering and enabling IT enabled financial inclusion, issues to facilitate ‘enablers’ and remove/minimise ‘impeders’ for banking development for inclusive growth, monitoring initiatives for providing ‘Credit Plus’ activities by banks and State Governments such as setting up of Financial Literacy Centres (FLCs) and RSETI type Training Institutes for providing skills and capacity building to manage businesses,  scaling up financial literacy efforts to achieve financial inclusion,    review of performance of banks under District Credit Plan (DCP), flow of credit to priority sector and weaker sections of the society,  doubling of farmers’ income by 2022,  assistance under government-sponsored schemes, grant of educational loans,     progress under SHG – bank linkage,  SME financing & bottlenecks thereof, if any, Timely submission of data by banks,  review of relief measures (in case of natural calamities wherever applicable).  DCC should give adequate feedback to the SLBC on various issues that need to be discussed on a wider platform so that these receive adequate attention at the State Level.

State Level Bankers’ Committee (SLBC):

The State Level Bankers’ Committee (SLBC)/Union Territory Level Bankers’ Committee (UTLBC) coordinates the activities of the financial institutions and Government departments in the State/Union Territory under the Lead Bank Scheme. The quarterly meetings are chaired by the Chairman/ Managing Director/ Executive Director of the Convenor Bank and co-chaired by the Additional Chief Secretary or Development Commissioner of the State concerned. In cases where the Managing Director/Chief Executive Officer/Executive Director of the SLBC Convenor Bank is unable to attend SLBC Meetings, the Regional Director of the RBI shall co-chair the meetings along with the Additional Chief Secretary/Development Commissioner of the State concerned. A High Level of participation in SLBC/UTLBC meetings ensures an effective and desired outcome with meaningful discussion on issues of public policy of both the Government of India and the Reserve Bank of India.

Agenda for SLBC Meetings:

The main agenda for SLBC meeting will be  the review of financial inclusion initiatives, expansion of banking network and Financial Literacy, status of opening of banking outlets in unbanked villages, CBS-enabled banking outlets at the unbanked rural centres (URCs), review of Operations of Business Correspondents – hurdles/issues involved, progress in increasing digital modes of payment in the State, provision of continuous connectivity with sufficient bandwidth, resolving connectivity issues/ connectivity options (Bharat Net, VSAT, etc.), installation of ATMs and PoS machines and status of implementation of e-receipts and e-payments in the State, status of rollout of Direct Benefit Transfer in the State, Aadhaar seeding and authentication, review of inclusion of Financial Education in the School Curriculum, financial literacy initiatives by banks (particularly digital financial literacy), creating awareness about various schemes, subsidies, facilities e.g. crop insurance, renewable energy,   review of efforts towards end to end projects involving all stakeholders in the supply chain etc. The meeting also deliberate and review the credit disbursement by banks particularly lending towards DAY-NRLM, DAY-NULM, MUDRA , Stand-Up India , PMEGP , MSMEs , affordable housing, KCC , the grant of education loans, crop insurance under PMFBY , progress under SHG-bank linkage programme, etc. and impact of these schemes.

Service area approach (SAA) is a developed version of the ‘area approach’ structure of the Lead Bank Scheme. Under SAA plan each commercial bank / RRB branch in a rural and semi-urban area is designated to serve 15 to 25 villages for the planned and orderly development of the areas. The designated branch of a bank has to meet the banking needs of its service area vis-à-vis forge effective linkages between bank credit, production, productivity, and an increase in income levels of the villages.

Related post:

What is SHG bank linkage programme?

Author:  Surendra Naik

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Lead Bank Scheme - Rural Banking | SBI - Agri & Rural

Lead bank scheme & slbc.

Lead Bank scheme & SLBC

Lead Bank scheme

• State Level Banker's Committee

The Lead Bank Scheme, introduced in year 1969, envisages assignment of lead roles to individual banks for the districts allotted to them. The lead bank acts as a leader for coordinating the efforts of all credit institutions in the allotted districts to increase the flow of credit to agriculture, MSE and other economic activities with the district being the basic unit in terms of geographical area. SBI has been assigned lead bank responsibility in 268 districts. (details are furnished in Annexure I)

• Lead Districts allotted to SBI   Annexure I

 State Level Banker's Committee

State Level Bankers' Committees are formed in all the States for inter-institutional coordination and joint implementation of programmes and policies by all the financial institutions operating in the State. Responsibility for convening State Level Bankers Committee (SLBC) meetings has been assigned to various commercial banks. SLBC meetings, held quarterly, provide for interaction amongst the various banks in the State on one hand and between the banks and the State Government authorities on the other.

SBI has been assigned responsibility of convenorship of SLBC in 12 States and 2 Union Territory. (details are furnished in Annexure II)

SLBC Dashboard has been developed in MIS-Online for providing standardised data/ information of the Bank.

• Contact details of SLBC   Annexure II

Last Updated On : Tuesday, 30-04-2024

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Assignment of Lead Bank Responsibility of Associate Banks to SBI

Reserve Bank of India

RBI/2016-17/262 FIDD.CO.LBS.BC. No. 26/02.01.001/2016-17

Dated: March 30, 2017

The Chairmen and Managing Directors SLBC Convenor Banks

Assignment of Lead Bank Responsibility

As per the Gazette of India Notification dated February 22, 2017, the merger of Associate banks with State Bank of India has been notified. The Order comes into effect on April 1, 2017.

2. Therefore, it has been decided to assign the lead bank responsibility of districts hitherto held by the Associate banks to State Bank of India. Accordingly, lead bank responsibility is assigned as follows:

3. There is no change in the lead bank responsibility of other districts across the country.

Yours faithfully

(Ajay Kumar Misra) Chief General Manager

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