Nationalisation of banks in India: objective, need along with merits & demerits.

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3. NATIONALISATION OF BANKS
PRESENTED BY:-
MRITYUNJAY RAI
Bsc.(Ag)3rd year.
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4. Introduction
 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.
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5. Need:-
 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.
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6. Reducing 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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7. 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.

8.  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 policy
ii. by initiating specific schemes like the Lead Bank Scheme (LBS).
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10. Features:-
 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.
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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
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13. The 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
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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 on
15th April 1980.
 The six banks nationalized in the second spell were:-
1. Punjab and Sind bank
2. Andhra Bank
3. New Bank of India
4. Vijaya Bank
5. Oriental Bank of Commerce
6. Corporation Bank.
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15. As 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.
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18. Demerits 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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