General Awareness about Nationalisation of Banks
The Indian Banking System went through a series of crisis and bank failure and thus its growth was slow in the first half of this century. But after Independence, it has made rapid progress due to planned economic growth, increase in money supply, growth of banking habit, control and guidance by the RBI and above all nationalisation of banks.
The role of public sector in the commercial banking has been greatly enhanced through progressive nationalisation of banks. The first bank to be nationalised was the RBI, the country's Central Bank, on January 1949. This was followed by nationalisation of the Imperial Bank of India and its conversion into the State Bank of India (SBI) in July 1955. The nationalisation and conversion of eight major state associated banks into subsidiary banks of SBI took place in 1959, Merger of two such banks into one from 1963, reduced the number of associate banks of SBI to seven. The commercial banking, however, until 1969 was mostly in the private sector. The nationalisation of 14 major banks, with deposits of Rs. 50 crore or more, in July 1969 was a historic and momentous event in the history of Indian Banking. This was followed by nationalisation of six more banks in April 1980. Altogether there are 27 (since two nationalised banks were merged into one in 1990s nationalised banks in India.
Causes for Nationalisation of Banks:
- Ownership and control of banking system in the country was concentrated in a few hands leading to concentration of wealth and economic power, which was against the declared objectives in the Directive Principles of State Policy of the Constitution of India.
- Small industrial business units were continuously and consistently ignored and starved of funds.
- Commercial banking failed to mobilise adequate resources for adequate purposes. It failed to open branches in small towns and villages and were concentrated mainly in urban areas.
- It was also held responsible for draining savings of some states and diverting the same to other states.
- Resources available with the banks were utilised by directors of the banks often to promote personal interests.
- It thoroughly ignored the needs of agricultural credit.
Progress of Banking Since Nationalisation:
After nationalisation in 1969 commercial banks structurally gained strength and cohesion. Nationalisation helped in creating better environment for formulating and implementing monetary and banking policies. Major achievements of nationalisation of banks were in the field of branch expansion, extension of credit to agriculture sector, small scale industries and certain hitherto neglected areas. Increase in bank deposits and credits etc.,
(I) Branch Expansion:
Nationalisation of banks led to rapid expansion of banking network in all the areas, especially in the rural and semi-urban. Since nationalisation of banks, number of bank offices have multiplied rapidly from 8,300 in July 1969 to more than 62,000 in June 1995. lii the rural areas the number of bank offices have-increased.
(II) Deposit Growth:
Expansion of bank deposits has been an important feature in recent years. It happened because of the expansion of a network of bank branches, strengthening of banking system, spread of banking habits and incentives given to the savers. In the recent years, however, commercial banks have been facing stiff competition from mutual funds, housing banks etc. All this has shown that the banking system has acquired an important states in an expanded economy.
(III) Priority Sector Lending:
Earlier priority sector areas like agriculture were neglected by the commercial banks. Nationalisation of banks led to focus attention to priority sector areas such as agriculture, small industries, small transport operators etc.
(IV) Development Oriented Banking:
After nationalisation, banks have shown much greater readiness to meet the credit requirements of industry and agriculture. Banks are now assisting small industries, small farmers and other such hitherto neglected clientele in the country. The Lead Bank Scheme has given a real impetus to the development efforts in the country.
(V) Social Banking:
The government introduced differential interest rates scheme in 1972 in the 162 districts and later to whole of the country. Under it, the public sector banks given loans at a concessional interest rate of 4% to the weaker sections of the community in order to improve their economic status.
In order to rectify imbalances in rural economy and also for all round progress and prosperity of rural masses the government of India with the help of banking system has introduced many important schemes such as the integrated Rural Development Programme (IRDP), Self-Employment Scheme for Educated Unemployed Youth, Self-employment Programme for Urban Poor and Credit to Minority Communities.
(VI) Diversification:
Commercial Banks since nationalisation have given up their traditional and conservative system of banking and have taken up new progressive functions. They have now set up merchant banking divisions and are underwriting new issues, especially preference shares and debentures. Some banks have now floated subsidiaries as mutual funds ( which were once a monopoly of UTI).
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