DEPARTMENT OF TECHNICAL

EDUCATION,A.P.
Name : P. Samba Murthy,
Designation : Head of Department

Branch :D.C.C.P.
Institute : S.R.R.S. Govt. Polytechnic, Sircilla,
Karimnagar District
Year/Semester : V Semester
Subject : Banking – I
Subject Code : CCP- 504(B)
Topic : Indian Banking Industry – Growth
Duration :50 Minutes
Sub-Topic : Evaluation of Nationalization Vs
Privatization
Teaching Aids : PPT CCP504(B).33 1
Objectives

 On completion of this period, you would be able

to

 Understand the evaluation of nationalization of

banks in Pre-reform period.

CCP504(B).33 2
Recap
 So far we have discussed with regard to
evaluation of banks since nationalization in our
country.
 Also now let us know further evaluation as well as
the consequences of Nationalization of Banks in
this class.

CCP504(B).33 3
Evaluation of nationalization

 Certain limitations apart, performance of

commercial banks in the post-nationalization
phase was definitely impressive.
 However, some new-liberal economists like
Shankar Acharya refuse to see any merit in bank
nationalization in 1969.

CCP504(B).33 4
Evaluation of nationalization

 In Shankar Acharya’s opinion, the decision to

nationalize banks in India was a major error.
 He wrote in The Economic Times five years
ago, “More than three decades have passed
since Indira Gandhi nationalized the banks.

CCP504(B).33 5
Evaluation of nationalization

 With the benefit of hindsight and painful

experience we can safely conclude that the
decision was a major error in economic policy
with lasting adverse consequences.
 Indeed this conclusion has been staring us in
the face for a long time”.

CCP504(B).33 6
Evaluation of nationalization

 C.Rangrajan, another neo-liberal economist had

said, addressing the Bank Economists Conference,
1994, “The Indian banking system is on the threshold
of far-reaching changes.

 It has at the start of the second banking revolution

which besides consolidating the gains of the first
revolution ushered in 1969 will make the banking
institutions viable and efficient…”

CCP504(B).33 7
Evaluation of nationalization

Our financial system today consists of a vast

network of banks and financial institutions offering
a wide range of products and services.

Banking and other financial facilities have, over

the last two and a half decades, come to be
extended over a large cross section of people.

CCP504(B).33 8
Evaluation of nationalization

 This is a significant achievement of the banking

sector”. It is thus clear that all neo-liberals do not
negate the contribution of bank nationalization.

 Some of the neo-liberals appreciate the positive

role of bank nationalization in economic policy.

CCP504(B).33 9
Evaluation of nationalization

 They, however, believe that having made

significant contribution to banking
development, relevance of bank
nationalization is now over and thus they
advocate neo-liberal reforms in India’s
banking sector.

CCP504(B).33 10
Consequences of Nationalization
of Banks

 There have been remarkable changes in the

banking sector after nationalization of major
banks.
 Despite impressive quantitative achievements
in resource mobilization and in extending credit
reach, several distortions crept into the
banking system.

CCP504(B).33 11
Consequences of Nationalization
of Banks

 Several public sector banks and financial

institutions have become weak financially.
 They were incurring losses year after year. The
quality of assets (portfolio) deteriorated.
 In result, productivity and efficiency of the
system has suffered.

CCP504(B).33 12
Consequences of Nationalization
of Banks
 The capital base of public sector banks eroded.
 The government had to make budget allocations
annually to help them financially. S.B.I. and its
subsidiaries did not sustain losses. They made
profits.
 The other 19 public sector banks continued to
make losses.

CCP504(B).33 13
Consequences of Nationalization
of Banks

 The huge increase in losses of public sector banks

in 1992-93 was due to the Securities Scam.
 It is possible to find out the causes for low
profitability of public sector banks – their deep
commitment to social obligations.

CCP504(B).33 14
Consequences of Nationalization
of Banks

 The social obligations ‘imposed’ by the

government such as opening of rural branches,
sponsoring and subsidizing RRBs, priority sector
lending, financing IRDP and other poverty
alleviation programmes, concessional rate of
interest etc

CCP504(B).33 15
Summary

 The objectives that bank nationalization sought to

meet are more pressing and urgent than ever and
they can be achieved by banking sector that is
under the broad control and direction of an
accountable state.
 In order to improve the functioning of the financial
sector, particularly the banking sector in India,
Narasimham Committee has suggested wide-
ranging measures.

CCP504(B).33 16
Frequently Asked Questions

 What are the consequences of nationalization of banks.

 Briefly explain about the nationalization of Commercial
Banks.

CCP504(B).33 17
Quiz

Which economist first opposed the

nationalization
Shankar Acharya
Shankaranand
Shiva Shankar

CCP504(B).33 18