Nationalization Of Commercial Banks

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NATIONALIZATION OF COMMERCIAL

BANKS

PRESENTED BY

NISHA P SOMU

S4, MBASMBS


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Introduction

Nationalization of commercial banks is the most noteworthy

development in the field of Indian commercial banks. Banking law

(amendment) Act was passed in 1968. It gave power to the Central

Government to exercise control over commercial banks. But the

government was not satisfied with these actions. It came forward to

nationalize 14 major commercial banks on 19th July 1969.

Again on April 15, 1980, 6 more commercial banks were

nationalized. This step was taken by the government in the light of its

decision to raise the share of advances to the priority sectors from 33 %

to 40 %. The nationalization of 14 major commercial banks which has

deposits of not less than Rs 50 crores each in July 19, 1969 and another

six banks in 1980 was described as a historic event in the history of

Indian Banking.


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Nationalization - Definition

Takeover of privately owned corporations, industries,

and resources by a government with or without

compensation. Common reasons for nationalizationinclude (1) prevention of unfair exploitation and large-

scale labor layoffs, (2) fair distribution of income from

national resources, and (3) to keep means of generating

wealth in public control.


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Objectives Of Nationalization Of Banks

1.Removal of concentration of economic power in the hands of a few.

2.Channelisation of credit towards priority sectors such as agriculture ,

small industries, transport and exports.

3. To provide credit to new class of entrepreneurs like self employed

artisans, craftsmen, engineers, doctors etc.4. Provision of adequate training as well as reasonable terms of service for

bank staff.

5. To give a professional bent of bank management.

6. To extent banking facilities in unbanked rural areas.

7. To enable the Reserve Bank to have greater control over commercial

banks.


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Arguments For Nationalization (Causes Of

Nationalization)

Concentration of economic power

Need to provide funds to priority sector

Neglectfulness of agriculture sector

Misuse of funds

Speculative activities

Lack of professional expertise

Failure to mobilize resources

Discrimination against small business

Elimination of wasteful competition Safety of depositors

Strengthen banking system

Socialistic view


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Arguments against Nationalization

Nationalization may not lead to socialism

Diminution of efficiency

Control on monopolies

Removal of malpractices

Risk involved in lending to agriculturists

No need of security to depositors

Political interference

Compensation burden


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Achievements of Nationalization

(a) Development of banking industry

1. Developments in the role

2. Branch expansion

3. Branch Expansion in rural areas

4. Deposit mobilization5. Change in the composition of deposits

6. Credit expansion

7. Investment in securities

8. Finance to public sector undertakings

9. Change in the attitude(b) Financing to priority sector

1. Finance to Agriculture


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Cont

2. Finance to small scale industries

3. Finance to export promotion

4. Small road and water transport operators

5. State Sponsored Bodies for Scheduled Casts and Tribes

6. Retailers7. Housing loans


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14 Banks Nationalized in the first phase of Nationalization

(on 1969)

Allahabad Bank

Bank of Baroda

Bank of India

Bank of Maharashtra

Canara Bank

Central Bank of I ndia

Dena Bank

Indian Bank

Indian Overseas Bank

Punjab National Bank

Union Bank of India

Syndicate Bank

United bank of India

UCO Bank


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6 Banks Nationalized in the second phase of Nationalization

(on the last Friday of March 1980)

Punjab & Sindh Bank

Andhra Bank

New Bank of India

Vijaya Bank

Oriental Bank of Commerce

Corporation Bank


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Lending Policies of the Nationalized commercial Banks

The banks may not be able to build up a comprehensive system ofcredit planning with the expected degree of sophistication unless wehave an accurate, imaginative and effective information system at alllevels of management within the bank and outside.

Efforts are required by the nationalized banks for checking the

diversion of financial resources from backward States (including Goa,Himachal Pradesh, Jammu & Kashmir, Punjab, Andaman & NicobarIslands and Lakshadweep besides the above mentioned states to otherStates and raising their credit ratio up to 80% of the national average.

The share of the metropolitan areas in total credit should bereduced to 25% from 53.9% in 1995-96.

It is felt that the concessional rates of interest on priority sectorcredit and the DRIS should be maintained. On other issues relating tobank credit the recommendations of the Narasimham Committee (1991and 1998) are by and large in the right direction.


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Documents

Nationalization Of Commercial Banks