Nationalisation of banks in India
Basic History of Nationalisation of banks in India
The story of Nationalisation of Banks in India was started from 1955 when the Imperial Bank of India was nationalized and reestablished as the State Bank of India under the SBI act 1955. Till 1969 State Bank of India was the only bank that was not privately owned. But the most important step was taken when Indira Gandhi’s Government passed an ordinance and nationalized the major 14 commercial banks and transferred the ownership of these banks form private sector to public sector.
After independence, the government of India made 5-year planning system to achieve social objectives but commercial banks failed to support the government in achieving social objectives because all commercial banks were owned by private corporate houses those days. That was the basic reason of Nationalisation of Banks in India. On 19th July 1969, the government of India nationalized 14 commercial banks which had more than Rs 50 crores total deposit base. The second tenure of nationalization of banks in India came in April 1980.
image source: The Times Of India
Objectives of nationalisation of banks in India
- For proper utilize the savings of country’s people to the maximum possible extent.
- For expand the banking system in the country, basically for social purposes.
- For fulfill financial credit needs of small industry and other economic activities and to support them for their growth.
- For reducing the economic gap between rural and urban areas in the country because before nationalization banking sector was limited to urban areas.
- To control the power of private sector or monopoly firms, because on that time most banks were occupied by private cooperate houses and they did not show interest in social welfare.
- The government needs investment in social infrastructure for developing the economy of the country like roads, bridges, schools, port, hospital etc because British left India in the worst condition.
Banks that was nationalised in 1969
Serial no Bank Name Founded on Head Offices
- Allahabad bank 1865 Calcutta
- Bank of Baroda 1908 Mumbai
- Bank of India 1906 Mumbai
- Bank of Maharashtra 1935 Pune
- Canara Bank 1906 Bangalore
- Central Bank of India 1911 Mumbai
- Dena Bank 1938 Mumbai
- Indian bank 1907 Chennai
- Indian overseas bank 1937 Chennai
- Punjab & Sindh Bank 1908 New Delhi
- Punjab National Bank 1894 New Delhi
- Syndicate Bank 1925 Karnataka
- UCO bank 1943 Calcutta
- United Bank of India 1950 Calcutta
Banks that was nationalised in 1980
Serial No Bank Name Founded on Head Offices
- Vijaya Bank 1931 Bangalore
- Oriental Bank of Commerce 1943 New Delhi
- Corporation Bank 1906 Mangalore
- Andhra Bank 1923 Hyderabad
- Union Bank of India 1919 Mumbai
Merits of Nationalisation of Banks in India
- Bank deposits expanded: After the Nationalisation of banks, Banks deposits was increased by 200 times because expanding of bank’s branches. Before nationalization banks only focus on developed and populated areas but after the nationalization banks also opens their branches in undeveloped and low populated area, consequently, banks deposits boosted and reached a record level.
- Credit provided to weaker section: After Nationalisation of banks, Banks are providing loans to the weaker section of society at the very low rate. In April 1972, Government released a scheme “Differential Interest rates scheme” in which banks have to give loan at 4% interest rate to the weaker section of society.
- Risk Reduction: after nationalisation, Due to a large number of banks deposits and borrowers, banks had brought a high degree of diversification in the banking system, which reduces the risk of defaults.
- Focus on small Industries: Before nationalisation banks only focus on developed and highly profitable sectors but after nationalization banks also focus on a small industry which is not highly profitable but still provide welfare to society.
Demerits of Nationalisation of Banks of India
- Less Competition: After the nationalisation of banks, competitions between banks in India was decreased because now ownership transferred to the government and banks had no incentive to do anything new and innovative to compete with others.
- Inefficiency: Due to less competition between banks and less innovative ideas, country’s banking system becomes inefficient.
- Political Purpose: Critics argue that nationalisation of banks was a political step instead of social purpose.
- Increased Expenditure: After nationalisation, branches expanded to the low populated also and undeveloped areas of the country which incur higher expenditure burden.