Nationalization of Nationalization of banksbanks

Banking System in India is dominated by nationalized banks Banks which are managed and controlled by the government are nationalized banks. These banks work according to norms of RBI.

Earlier banks were not in the hands of government. They were in the hands of private owners who were high earners of the society. This situation was before 1969.

Banking is defined in Section 5(b) of the Banking Regulation Act, as the acceptance of deposit of money from the public for the purpose of lending or investment

Situation Prior to 1969Situation Prior to 1969

Allahabad Bank

Andhra Bank

Bank of Baroda

Bank of India

Bank of Maharashtra

Canara Bank

Central Bank of India

Corporation Bank

Dena Bank

Indian Bank

Syndicate Bank

UCO Bank

Union Bank of India

United Bank of India

Vijaya Bank Vijaya Bank

Indian Overseas Bank Indian Overseas Bank

Oriental Bank of Oriental Bank of Commerce Commerce

Punjab and Sind Bank Punjab and Sind Bank

Punjab National Bank Punjab National Bank

Reasons for Reasons for NationalizationNationalization

1.1. Commercial banks had facilitated the Commercial banks had facilitated the concentration of economic power in the hands of concentration of economic power in the hands of few and created monopoly in the country.few and created monopoly in the country.

2.2. The priority sector was neglected. Banks did not The priority sector was neglected. Banks did not pay attention to credit needs to farmers, small pay attention to credit needs to farmers, small scale industriesscale industries

3.3. Management lacked professional expertise.Management lacked professional expertise.

4.4. Resources of banks were misused for benefit of Resources of banks were misused for benefit of directors and their companiesdirectors and their companies

5.5. Bank credit was not made according to five year Bank credit was not made according to five year developmental plans.developmental plans.

This was observed by This was observed by the then prime minister the then prime minister Indira Gandhi in 1969. Indira Gandhi in 1969. She thought that these She thought that these banks were not working banks were not working for development of for development of nation. So she thought nation. So she thought of taking over banks of taking over banks into government into government undertaking. undertaking.

When did it happen?When did it happen?19551955: Nationalization of State Bank of India. : Nationalization of State Bank of India.

19591959: Nationalization of : Nationalization of 77 SBI subsidiaries. SBI subsidiaries.

February 1February 1stst19691969: Nationalization of 14 : Nationalization of 14 major banks with deposit of over 50 crores. major banks with deposit of over 50 crores.

19801980: Nationalization of seven banks with : Nationalization of seven banks with deposits over 200 crores. deposits over 200 crores.

Major Points on Which Major Points on Which Nationalized Banks Nationalized Banks

Worked UponWorked Upon

1.1. To check concentration of economic power To check concentration of economic power through equitable distribution of bank credit through equitable distribution of bank credit

2.2. To strengthen banking system by To strengthen banking system by preventing bank failure preventing bank failure

3.3. To make bank finance available for To make bank finance available for productive purposes in the priority sectors productive purposes in the priority sectors of the economy.of the economy.

4.4. To extend banking services in rural areas. To extend banking services in rural areas.

Objectives of Bank Objectives of Bank NationalizationNationalization

1.1. To allocate bank credit according to To allocate bank credit according to requirement of planned economic requirement of planned economic development.development.

2.2. To spread and diversify banking services to To spread and diversify banking services to underdeveloped and backward states.underdeveloped and backward states.

3.3. To make credit planning part of larger To make credit planning part of larger national plans.national plans.

4.4. To foster new class of entrepreneurs.To foster new class of entrepreneurs.

5.5. To provide bank credit to priority sectors. To provide bank credit to priority sectors.

Progress of Nationalized Progress of Nationalized banksbanks

Source: RBI quarterly handouts of Source: RBI quarterly handouts of 1993, 95, 96,97,981993, 95, 96,97,98

Numerical IncreaseNumerical IncreaseBanking in India increased fromBanking in India increased from

July 1969 - July 1969 - 82628262 branches branches June1999 - June1999 - 64,98064,980 branches branches

0

10000

20000

30000

40000

50000

60000

70000

1969 1999

Source: RBI quarterly handouts of 1998Source: RBI quarterly handouts of 1998

Branch expansion in rural and unbanked Branch expansion in rural and unbanked areasareas

Banks opened several branches in rural areas Banks opened several branches in rural areas also. So number of people working in one bank also. So number of people working in one bank reduced from reduced from 65000 to 1200065000 to 12000. Also the chart . Also the chart here explains reduction of bank in urban areas here explains reduction of bank in urban areas and increase in rural areasand increase in rural areas..

0

10

20

30

40

50

60

1969 1999

Rural

Semi-Urban

Urban

Source: RBI quarterly handouts of 1998Source: RBI quarterly handouts of 1998

Deposit MobilizationDeposit Mobilization

July 1969 – July 1969 – 4,665 crores4,665 crores

Dec. 31 Dec. 31 1999- 1999- 9,88,099 9,88,099 crorescrores

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

1000000

1969 1999

amount incrores

Source: RBI quarterly handouts of 1998Source: RBI quarterly handouts of 1998

Deployment of CreditDeployment of Credit Total advances in 1969 - Rs. 3,399 croresTotal advances in 1969 - Rs. 3,399 croresTotal advances in 1999 - Rs. 3,42,012 crores.Total advances in 1999 - Rs. 3,42,012 crores.This proved that large no. of people started This proved that large no. of people started banking banking

0

100000

200000

300000

400000

1969 1999

amount in crores

Source: RBI quarterly handouts of 1998Source: RBI quarterly handouts of 1998

Problems Faced After Problems Faced After NationalizationNationalization

1.1. Deterioration in quality of loan Deterioration in quality of loan portfolioportfolio

2.2. Inadequacy of capitalInadequacy of capital

3.3. Political interferencePolitical interference

4.4. OverstaffingOverstaffing

5.5. Inadequate supervision and Inadequate supervision and regulationregulation

6.6. Lack of CompetitionLack of Competition

BibliographyBibliography

BANKING AND FINANCE – BANKING AND FINANCE –

SHETH PUBLISHERSSHETH PUBLISHERS

ACKNOWLEDGEMENTACKNOWLEDGEMENT

It gives us immense pleasure in It gives us immense pleasure in presenting this project. We presenting this project. We appreciate the valuable guidance appreciate the valuable guidance provided to us by our teacher ; provided to us by our teacher ; respected respected Prof. AsgaonkarProf. Asgaonkar. We . We would take this opportunity to would take this opportunity to thank him, as without his support thank him, as without his support this project was not possiblethis project was not possible