Nationalization of banks

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.
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
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

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

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

3. Management lacked professional expertise.

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

5. 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 1
st
1969: 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

1. To check concentration of economic power
through equitable distribution of bank credit

2. To strengthen banking system by preventing bank
failure

3. To make bank finance available for productive
purposes in the priority sectors of the economy.

4. To extend banking services in rural areas.
Objectives of Bank
Nationalization


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

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

3. To make credit planning part of larger national
plans.

4. To foster new class of entrepreneurs.

5. 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
0
10000
20000
30000
40000
50000
60000
70000
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.
0
10
20
30
40
50
60
1969 1999
Rural
Semi-Urban
Urban
Source: RBI quarterly handouts of 1998
Deposit Mobilization

July 1969
4,665 crores

Dec. 31 1999-
9,88,099 crores
0
100000
200000
300000
400000
500000
600000
700000
800000
900000
1000000
1969 1999
amount in
crores
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
0
100000
200000
300000
400000
1969 1999
amount in crores
Source: RBI quarterly handouts of 1998
Problems Faced After
Nationalization
1. Deterioration in quality of loan portfolio

2. Inadequacy of capital

3. Political interference

4. Overstaffing

5. Inadequate supervision and regulation

6. 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