NATIONALIZATION OF BANKS IN INDIA & ITS ADVANTAGES

DEFINITIONSBANK:-A bank is a financial institution that

creates credit by lending money to a borrower, thereby creating a corresponding deposit on the bank's balance sheet.

NATIONALIZATION OF BANKS:-To convert banks from private to governmental ownership and control

NATIONALIZED BANK:-Nationalized Bank refers to Government Undertaking or Government ownership and control to serve the public, businesses (public or private)

Significance of Banks Savings Mobilization Remittance of Funds Well Developed Money market Development of Capital Market Public Finance Financing the Nation Risk Free Investment Corporate Services Social Banking

Nationalization of Banks in India - Introduction India after independence started economic

planning with social objective. 1st five year plan was made in 1951 There are 430 commercial banks at that time ,

but they failed to help the objective. Banks were controlled by business houses, failed

to cater need of cottage industry, poor people etc. Thus, the government decided to nationalize 14

major commercial banks on 19th July, 1969 and later 6 more banks were nationalized in April 1980

Nationalization of Banks in India - Introduction The partition of the country hurt the banking sector as well.

The average capital of the failed banks between 1947 and 1955 was significantly lower than the average size of paid-up capital of reporting banks in the industry.

suggesting that normally it was small banks that failed.

1948- worst years for the relatively larger banks-45 institutions were closed down

Bank deposits mobilised by commercial banks were largely lent out to security based borrowers in trade and industry.

Nationalization of Banks in India - Introduction

Objectives of Nationalization

The Prime Minister, Smt. Indira Gandhi said "The present decision to nationalize major banks is to accelerate the achievements of our objectives. The purpose is to expand bank credit to priority areas which have hitherto been somewhat neglected. It also includes, The removal of control by a few Provision of adequate credit facilities to

agriculture, small industry and exports The giving of professional bent to bank

management The encouragement of new classes of

entrepreneurs, and The provision of adequate training as well as

reasonable terms of service for bank staff ".

Nationalization of Banks

Phase 1:Nationalization of Reserve Bank of IndiaAfter independence Gov. decided to

control RBI coordinate the economic, monetary,

&fiscal policies better developmentSo RBI Act was set up in 1948(for

transferring to public owners)RBI was Nationalized in 1949

Nationalization of BanksPhase 2:Nationalization of 14 Commercial Banks 1955:State Bank group nationalized made

from Imperial Bank (SB India, SB Travancore, SB Hyderabad, SB Bikaner, SB Mysore, SB Patiala, SB Saurashtra, SB Indore)

1969:14 Banks Nationalized (Central bank of india, Bank of India, Punjab national Bank, Canara bank, United bank of India, Syndicate Bank, United commercial bank, Dena bank, Union bank of India, Allahabad bank, Indian bank, Indian overseas bank, Bank of Maharashtra)

Nationalization of Banks

Phase 3:Nationalization of 6 banks Andhra Bank, Punjab & Sind Bank,

Coperation Bank, Oriental Bank of Commerce, New Bank of India, Vijaya Bank were nationalized on 15th April 1980.

Later in1993 New Bank of India merged with Punjab National Bank.

Now there are 19 Nationalized Banks in India.

ARGUMENTS IN FAVOUR OF NATIONALIZATION OF COMERCIAL BANKS IN INDIA

1.Neglects Primary Sector:Gave priority to industrialistsAvoided agriculture and small scale

industries When nationalized these sectors become

prior

2.Neglet plan priorities: Owned by private parties-their needs National planning not considered Lead to underdevelopment Nationalization made planning

implementation easier

3.Diversion of profits: Black money -expected Huge profits Shareholders interests not considered Nationalization enabled the banks to

protect shareholders interest.

4.Rural banking: Banks- only in industrial zones Rural areas not considered Less branches It helps in improving rural and branch

banking

5.Implementation of monetary policy: RBI instructions avoided Monetary regulations not practiced- private

owners In such a situation to implement monetary

policy for RBI nationalization was the only means

6.Prevent unhealthy practices: Promoting black markets and hoardings Anti-social &anti-national elements were

supported To avoid such things in society Gov. need to

intervene(i.e. through nationalization)

7.Poor managements: Low quality of services Management lack professional decision

making skills Improve the services and decisions public

should be given opportunity. (nationalization)

8.Concentration of economic powers: Banks owned by industrialists Main purpose of banks provide monetary

needs of their own institutions Accumulated wealth= dead money To make money flow in the economy the

banks need to be free from industrialists. (nationalization)

9.Protect depositors:Bank failures make depositors suffer lossLoss of public faith in banks Gain public support and faith something

should be done.(nationalization)

10.Socilist pattern of society: India's socialist policies neglected by banks Mass utilization of resources in large

countries happen only when owned by Gov. For enabling this nationalization is

necessary

11.Mobilisation of deposits: Gov. can win peoples heart Private persons are not welcomed by rural

people So, public sector banks can do more for

mobilizing national wealth

12.Support agriculture sector: More than 60% people depend on this

sector they need support They cannot afford high rates of interest of

local money lenders For helping this sector nationalization will

be helpful

13.Balanced regional development:Urban development only not enough for a

nationAll need to be considered and strengthen in

financial mattersGov. can easily take over such activities

through public sector banks

14.Stability in banking sector: Banks need to be sure of safe custody of

deposits Planned growth enables to develop bans Nationalization can make it happen easily

15.Implementing new program's:Initiatives need to be taken to develop

underdeveloped areasGov. can easily handle such matters for e.g. ,

new schemes like village adoption scheme, Lead Bank Scheme can be formulated and implemented. Besides, different types of financial facilities can be extended to persons like Doctors, Engineers, Self-employed persons like artisans etc.

ACHIEVEMENTS OF NATIONALISATION

1.Expansion of brancheso Establishes branches even in remote and

backward areaso Banking habits of people improved

2.Growth of depositso Improved banking habits of peopleo Generation of more deposits by commercial

banks

3.Distribution of credito Availability of bank credit increaseso Credit is made available in every nook and corner

4.Diversification of activitieso Banks introduced new programmes and innovative schemeso They are engaged in financial services like merchant banking, lease financing ,mutual funds..

5.Development role of bankso They have implemented lead bank scheme, village adoption , service area approach

6.Importance to priority sectorso Priority sectors which was earilier neglected have been given due attentiono Improved the standard of living of the people

7.Funds for planso Commercial banks invested their funds in government and other approved securitieso Banks made their funds available to government for meeting the plan requirements

8.Credit to weaker sectiono Weaker sections comprising of marginal farmers, landless labourers,artisans ,village ,cottage industries improved their economic conditions with financial support of the banks.

9.Export credito Commercial banks started providing credit to exporters at concessional rates and termso Encourage export as it improves the balance of trade of the country