Bank Nationalization- Economics

Nationalization of banks

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 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.

Situation 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 Indian Overseas Bank Oriental Bank of Commerce Punjab and Sind Bank Punjab National Bank

Reasons for Nationalization

2.

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

4.

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

6.

Management lacked professional expertise.

8.

Resources of banks were misused for benefit of directors and their companies

10. Bank credit was not made according to five year

developmental plans.

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

When did it happen? 1955: Nationalization of State Bank of India. 1959: Nationalization of 7 SBI subsidiaries. February 1st1969: Nationalization of 14 major banks with deposit of over 50 crores. 1980: Nationalization of seven banks with deposits over 200 crores.

Major Points on Which Nationalized Banks Worked Upon

To check concentration of economic power through equitable distribution of bank credit To strengthen banking system by preventing bank failure To make bank finance available for productive purposes in the priority sectors of the economy. To extend banking services in rural areas.

Objectives of Bank Nationalization

1.

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

3.

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

5.

To make credit planning part of larger national plans.

7.

To foster new class of entrepreneurs.

9.

To provide bank credit to priority sectors.

Progress of Nationalized banks

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

Numerical Increase Banking in India increased from July 1969 - 8262 branches June1999 - 64,980 branches 70000 60000 50000 40000 30000 20000 10000 0

1969

1999

Source: RBI quarterly handouts of 1998

Branch expansion in rural and unbanked areas Banks opened several branches in rural areas also. So number of people working in one bank reduced from 65000 to 12000. Also the chart here explains reduction of bank in urban areas and increase in rural areas. 60 50 40 Rural Semi-Urban Urban

30 20 10 0

1969

1999

Source: RBI quarterly handouts of 1998

Deposit Mobilization 1000000

July 1969 – 4,665 crores

900000 800000 700000 600000 500000 400000 300000

amount in crores

200000

Dec. 31 19999,88,099 crores

100000 0 1969

1999

Source: RBI quarterly handouts of 1998

Deployment of Credit Total advances in 1969 - Rs. 3,399 crores Total advances in 1999 - Rs. 3,42,012 crores. This proved that large no. of people started banking 400000 300000 200000

amount in crores

100000 0

1969

1999

Source: RBI quarterly handouts of 1998

Problems Faced After Nationalization

1. Deterioration in quality of loan portfolio 2. Inadequacy of capital 3. Political interference 5. Overstaffing 7. Inadequate supervision and regulation 9. Lack of Competition

Bibliography BANKING AND FINANCE – SHETH PUBLISHERS

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