Nationalisation of banks in India

The term nationalisation of banks in India refers to the process of taking over the ownership and control of privileges sector banks by the Government.

In other words, nationalisation of banks converted private sector banks into public sector banks.

Rationale For Nationalisation of banks in India:

During the pre-nationalisation period in India, commercial Banks operated like any other business concerns and were mostly concerns with the maximization of their private gains rather than nations gain.

These banks were lacking social purpose and very often misutilised the bank’s funds for their own interests. There was a strong demand for the nationalisation of commercial banks in India during the 195 and 1960. 


First Phase of Nationalisation of Bank:

The scheme of social controls failed to achieve the social and economic objectives of the government. The scheme could not remove the objectable banking practices and failed to give a new sense of purpose to the banks for the future.

The government realized that nothing short of nationalization would solve the malady and took a historic decision to take over certain banks under its controls.

Accordingly, the Government of India of 19th July 1969 nationalized 14 major Indian Banks each having deposits of more than Rs 50 Crore. No foreign banks were nationalized.

The 14 banks taken over by the Government under the banking companies (Acquisition and transfer of undertaking) act of 1970 are mentioned below:

  1. The central bank of India limited
  2. The bank of India limited
  3. The Punjab National Bank Limited
  4. The Bank of Baroda limited
  5. The United Commercial Bank Limited
  6. Canara Bank Limited
  7. United Bank of India limited
  8. Dena Bank Limited
  9. Syndicate Bank limited
  10. The Union Bank of India limited
  11. Allahabad Bank Limited
  12. The Indian bank limited
  13. The Bank of Maharashtra limited
  14. The Indian overseas Bank Limited

Second phase Of Nationalisation of Banks :

The public sec banking was enlarged in 1980 with the nationalisation of 6 more bank’s on 15th April 1980 with a deposit of Rs 200 Crore or more. These banks were acquired under the Banking Companies Act, 1980.

The names of The banks are mentioned below:

  1. The Andhra Bank Limited
  2. Corporation Bank Limited
  3. The new Bank of India Limited
  4. The Oriental Bank of Commerce Limited
  5. The Punjab and Sunday Bank Limited
  6. Vijaya Bank Limited

After nationalisation, these 20 bank’s continued to operate with the same name. However, the word Limited was dropped from their names. The government of India as a shareholder will have unlimited liability unlike shareholders of limited companies.

It may be noted that in September 1993, The new bank of India was merged with the Punjab National Bank. As a result of there are at present 19 nationalised Banks.

If the State bank of India and it’s 6 subsidiaries are included in the list, the total number of nationalised commercial Banks in India would be 26.

Objectives Of Nationalisation of Banks :

A) To mobilize the savings of the people to the largest possible extent and to utilize them for productive purposes in accordance with our plan and priorities.

B) To ensure the operations of the banking system for larger social purposes and to subject them to close public regulations.

C) To meet in an increasing manner the needs of productive sectors of the economy and in particular those of farmers, small scale industrialist and self-employed professional groups.

D) To effectively encourage the growth of the new and dynamic business people and make crisp open doors for until now disregarded and in reverse regions in various pieces of the country.

E) To curb the use of bank credit for speculation and other unproductive purposes.

F) To develop adequate professional management and modern managerial techniques and practices in the banking field.

Performance Of Nationalisation of Banks :

The nationalization of banks was the turning point in the growth of banks in India. The commercial banking system in India has improved and progressed especially after bank nationalisation.

The performance of banks are explained below:-

1. The developmental role of banks :

The nationalisation of banks brought a change in the approach of banks. These banks became aware of their social responsibilities and have given up their approach to only maximizing profits.

2. Branch Expansion :

I. The numerical increase in Bank Branches: There has been a massive expansion of bank branches after the nationalisation of major commercial banks in 1969. The number of branches of all scheduled commercial banks has increased from 8262 to 93080 at the end of March 2011.

II) Branch Opening in rural and unbanked areas: providing banking facilities in unbanked areas was one of the main objectives of bank nationalisation. The percentage of bank offices located in rural areas has increased from 22.4% to 43.7% of bank offices as of June 2007 in these areas.

III) Population per bank office: The national average population per bank office has gradually declined since 1969. The population per bank office declined from 65000 in June 1969 to 16000 at the end of June 2007 and further to 13000 at the end of March 2011.

IV) Correction of regional imbalances: There were great imbalances in the distribution of banking facilities in the country. This fact was highlighted by the Gadgil committee. The committee has pointed out in its report that the banking facilities were far greater in relatively in economically developed regions.

3. Deposit Mobilisation :

I) The numerical increase in Bank deposits: There has been a spectacular rise in the deposits of commercial banks after nationalisation.

II) Change in Composition of deposits: A distinct change is noticed in the composition of deposits of banks after nationalisation. As of December 2007 time deposits amounted to Rs 2503011 Crore as against Rs 438955 crore of demand draft.

4. Deployment of Credit :

The performance of banks in the disbursal of credit is quite spectacular in the post nationalisation period. Total advances of all scheduled banks in India increased from Rs 3599 Crore in July 1969 to Rs 2121765 Crore in March 2007 and further increased to Rs 3942082 Crore at the end of March 2011.

5. Advance to agriculture :

The nationalised Banks have particular importance in providing credit to agriculturists. A bank loan was provided to farmers for a variety of purposes like Purchase of Seeds, Fertilizers, Farm equipment, land, etc. Total advances to agriculture by all scheduled banks increased from Rs 162 Crore to Rs 230180 Crore as on March 2007.

6. Industrial Credit :

In the pre-nationalisation days, medium and large industries accounted for a sizeable amount of total bank credit at the expense of priority sectors. As of March 2007, the total bank credit to these industries amounted to 691483 Crore.

Failure Or Weakness of Nationalised Bank :

The performance of the nationalised bank is not the expectation. These banks have not been able to achieve all the objectives laid before them. The public sec to banks suffers from a number of weakness, some of which are stated below :

The banks are facing the problems of overdue credits and mounting bad debts. The proportion of overdue loans has been riding and in many cases, the borrowers have become defunct.

The most important problem of the nationalised Banks has been their declining profitability over the years, though in recent times there has been a turnaround and the banks are earning profits .

There has been a serious deterioration in customer service and the efficient and personalized service rendered by the banks in the pre- nationalization days are not found anywhere now.

There have been an instance of red-tapism, inordinate delay and lack of responsibility on the part of the banks.

The banks have resorted to window dressing of their accounts to hide the actual state of affairs and present a nonexistent picture to the external world.

Suggestions for Improvement :

A ) More operational autonomy may be given to the banks and politicization of banks should be stopped.

B) The machinery for the supervision of end-use of loans should be strengthened to avoid diversion of funds.

C) The machine for the recovery of overdue loans should be strengthened so as to reduce bad debts.

D) The subsidized credit to targeted backward sectors may be phased out.

Frequently Questions And Answers :

1. How many nationalised Banks in India?

Ans: 19 nationalised Banks in India.

2. Which is the first nationalised Banks in India?

Ans: Reserve Bank of India is the first nationalised Banks in India.

3. Is SBI a nationalised Banks?

Ans: Yes, SBI is a nationalised bank.

4. Is HDFC a nationalised bank ?

Ans: No, HDFC is not a nationalised Banks.

5. Is Yes Bank a nationalised Banks?

Ans: Yes, Yes Bank is a nationalised Banks.




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