NATIONALIZATION OF BANKING

Introduction
• After Independence, Indian banking industry has become an
important tool to facilitate the development of the Indian economy

• Banking services became the privilege of big business firms and

wealthy individuals.

• Masses were denied easy credit and banking services.

• Agriculture and rural small scale industries did not have access to
credit facilities and banking services.

• They depended on village money lenders and other private financiers

to fund their activities.

• These local money lenders exploited the rural population by charging

enormous interest rates and harsh repayment conditions.
 Contd.,
• Existence of five year plans since 1951- economic planning
-social ownership –Agrl. production.

• 1950-51 - 430 commercial banks- failed helping the

government in attaining the objectives.

• At that time, Indira Gandhi government decided to nationalize

14 major commercial banks on 19th July, 1969.

• This process compelled to focus on rural and agricultural

sectors as a part of their social responsibility.

• Resources were utilized to empower farmers and agricultural

laborers in order to free them from the clutches of money
lenders.
 Nationalization of banks in India
First phase

• 1955 - Imperial Bank of India became State Bank of India

with an Act of parliament
• 1959 - seven subsidiaries were nationalized and
associated with State Bank of India one by one
• The State Bank group became the largest bank in India
serving 90 million customers with a network of over 9000
branches in nook and corners of the country at that time
 Contd.,

Second Phase

• 1969 - nationalization of 14 major commercial banks with a

deposit base over Rs.50 crores in India.

• 1980 - 6 more commercial banks nationalised.

• With this step of nationalization, the GOI controlled

around 91% of the banking business in India.
 Objectives behind Nationalization of Banks in
India

• Social Welfare
• Controlling Private Monopolies
• Expansion of Banking
• Reducing Regional Imbalance
• Priority Sector Lending
• Developing Banking Habits
Demerits & Limitations - Bank Nationalization in India

• Inadequate banking facilities

• Limited resources mobilized and allocated
• Lowered efficiency and profits
• Increased expenditure
• Political and Administrative Inference