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3NATIONALISATION OF BANKS

PRESENTED BY:-

MRITYUNJAY RAI

Bsc.(Ag)3rd year.

4Introduction India after independence started economic planning with social objective.

1st 5 year plan was made in 1951.

There were 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.

  the Reserve Bank was also not completely State owned until it was nationalised in terms of the Reserve Bank of India (transfer to Public Ownership) Act, 1948.

5Need:- Social Welfare : It was the need of the hour to direct the funds for the needy and required sectors of the Indian economy. Sector such as agriculture, small and village industries were in need of funds for their expansion and further economic development.

Controlling Private Monopolies : Prior to nationalisation many banks were controlled by private business houses and corporate families. It was necessary to check these monopolies in order to ensure a smooth supply of credit to socially desirable sections.

Expansion of Banking : In a large country like India the numbers of banks existing those days were certainly inadequate. It was necessary to spread banking across the country. It could be done through expanding banking network (by opening new bank branches) in the un-banked areas.

6Reducing Regional Imbalance : In a country like India where we have a urban-rural divide; it was necessary for banks to go in the rural areas where the banking facilities were not available. In order to reduce this regional imbalance nationalisation was justified.

Priority Sector Lending : In India, the agriculture sector and its allied activities were the largest contributor to the national income. Thus these were labelled as the priority sectors. But unfortunately they were deprived of their due share in the credit. Nationalisation was urgently needed for catering funds to them.

Developing Banking Habits : In India more than 70% population used to stay in rural areas. It was necessary to develop the banking habit among such a large population.

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Nationalization of banks

At the time of independence, the private sector banks were predominantly

urban–oriented and under the control of a few industrialists which had not helped

in achieving the basic socio–economic objectives. The credit needs of agriculture,

small–scale industries and also weaker sections such as small traders and

artisans continued to be ignored.

Even though for nearly 50 per-cent(Budget, 2015) of population,

agriculture is the main occupation and contributed, the total bank

credit advanced to this sector was Rs. 6.76 trillion as on 2013(NSSO).

The bulk of the deposits contributed by the public were being

advanced to the industrial and trade sectors ignoring the prime sector

of agriculture. In agriculture, the credit scene was dominated by the

private money lenders who were charging exorbitant rates of interest.

9 The Government of India on 19th July 1969, promulgated an ordinance called

“The Banking companies Ordinance 1969” (Acquisition and Transfer of Undertakings).

Under this act 14 commercial banks having deposits of more than Rs. 50 crore each were

nationalized (brought under public control).

Making banking facilities available in the then unbanked areas. This was done in following steps:-

i. by designing a specific branch license policyii. by initiating specific schemes like the Lead Bank Scheme (LBS).

10Features:-

Lead Bank- responsible for taking lead role in surveying the credit needs of the population, development of banking and of credit facilities in the district allotted to it.

Allotment Of Districts- all the districts of the country allotted to 22 public sector banks (SBI and its 7 associates banks and 14 nationalized banks) and three private sector banks (Andhra Bank Ltd., Bank of Rajasthan Ltd. and Punjab and Sind Bank Ltd).

 Branch Licensing Policy- In 1977, banks were given the incentive of a license to open one branch in metropolitan and one in urban areas, as an incentive for opening four branches in rural areas.

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Credit Planning-  A broad credit plan tuned to the overall plan and monetary requirements was drawn up, taking into account the national priorities, the anticipated pace of deposits accretion, general economic situation and likely developments in the different economic sectors.

Estimates For Key Sectors- Separate estimates made for the busy and slack seasons, particularly in respect of sectors susceptible to seasonal changes. Consequently, individual credit plan of each bank was framed.

Deposit Mobilization- After the nationalization, confidence in the banking sector increased, reflected by the sharp increase in the share of bank deposits in household savings and financial savings of households in their total saving.

12 14 commercial banks 1. Central Bank of India

2. Bank of India

3. Punjab National Bank

4. Bank of Baroda

5. United commercial Bank

6. Canara Bank

7. United Bank of India

8. Dena Bank

9. Union Bank of India

10. Allahabad Bank

11. Syndicate Bank

12. Indian Bank

13. Bank of Maharashtra

14. Indian overseas Bank

13The objectives of nationalisation of banks (the former Prime Minister, Smt. Indira Gandhi)

Removal of control on banking business by a few industrialists.

Elimination of the use of bank credit for speculative and unproductive purposes.

Expansion of credit to priority areas which were grossly neglected like agriculture and small scale industries.

Giving a professional bent to the bank management

Encouragement of new entrepreneurs

Provision of adequate training to bank staff

14 Encouraged by the success of first spell of nationalization of

banks, six more banks in the private sector, having deposits more than Rs.200 crore were nationalized on15th April 1980.

The six banks nationalized in the second spell were:-1. Punjab and Sind bank2. Andhra Bank3. New Bank of India 4. Vijaya Bank5. Oriental Bank of Commerce6. Corporation Bank.

15As a result of two spells of nationalization of

banks, by the end of june, 1992 bank advances towards agriculture sector were 16.2 per cent of total credit as against one per cent by the

end of june, 1967.

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17 Merits Of Nationalisation Of Banks

Removal of barriers- There were no longer any barriers, social, economic or political between the bankers and customers. This enabled in a massive quantitative expansion in customer base and also helped improve the services.

Enabled the bank to widen its growth- There was no more concern for profitability and there was expansion in the rural areas. With this the economy also expanded and employment opportunities were created.

Expansion of branch network- During the last 28 years of nationalization, the branches of the public sector banks rose 800 per cent from 7,219 to 57,000, with deposits and advances taking a huge jump by 11,000 per cent and 9,000 per cent.

Reorientation of bank lending- accelerated the process of development, especially of the priority sectors of the economy, which had not previously received sufficient attention from the commercial banks. 

18Demerits of Nationalisation of Banks:-

Inadequate banking facilities : Even though banks have spread across the country; still many parts of the country are unbanked. Especially in the backward states such as the Uttar Pradesh, Madhya Pradesh, Chhattisgarh and north-eastern states of India.

Lowered efficiency and profits : After nationalization banks went in the government sector. Many times political forces pressurized them. Banking was not done on a professional and ethical grounds. It resulted into lower efficiency and poor profitability of banks.

Political and Administrative Inference : Many public sector banks badly suffered due to the political interference. It was seen in arranging loan meals. It ultimately resulted in huge non-performing assets of these banks and inefficiency.

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Increased expenditure : Due to huge expansion in a branch network, large staff administrative expenditure, trade union struggle, etc. banks expenditure increased to a dangerous levels.

Limited resources mobilized and allocated : The resources mobilized after the nationalization is not sufficient if we consider the needs of the Indian economy. Some times the deposits mobilized are enough but the resource allocation is not as per the expansions.

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