NATIONALIZATION OF BANKS: The first nationalized bank of India is State Bank of India which was to be nationalized in 1955. Then in 1959 subsidiaries of SBI became nationalized. Despite the provisions, control and regulations of Reserve Bank of India, banks in India except the State Bank of India or SBI, continued to be owned and operated by private persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry. Indira Gandhi, the then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled “Stray thoughts on Bank Nationalisation”. The meeting received the paper with enthusiasm. Reasons for the Nationalization – • Efficiency: Nationalisation will increase the efficiency of commercial banks as given below. (i) Deposits will increase because of increasing confidence in public sector bank. In¬crease in bank resources will lead to economics of scale. (ii)The government can appoint experienced personnel to run and manage the banks. (iii) Govt, has the countrywide administrative network. Hence, it can make suitable changes in the banking policies according to the prevailing trends in the economy. (iv) Nationalized banks can have the main motive of public service. (v) Public sector banks can give preference to priority sectors in advancing loans. Thus, nationalization promotes efficiency. • Monetization Issue: Commercial banks accumulate deposits from the public. There¬fore, they are in a position to bring changes in the supply of money. Such an important power should not be in the private sector. It is the public sector that should have the control over money supply. • Integration Issue: Central Banks are established by the Govt, for overall monetary control in the economy and is not aiming at profit. But commercial banks are started mainly to earn profit. Thus, there are contradicting objectives between Central Bank and commer¬cial banks. In this situation, the Central Bank may find it difficult to implement its policies when the commercial banks oppose them. Therefore, in the interest of co-ordination and co¬operation between them, commercial banks should be nationalized. • Socialization Issue: When a country aims at socialistic pattern of society, then the rol^ of public sector undertaking should be extended in all spheres of the economy. To start and run the public sector undertaking Govt, requires enormous financial requirements. Private commercial banks may obstruct such policies and may not finance public sector undertak¬ings and above all they may discriminate against them. Therefore, the nationalization of commercial banks will be necessary if the government wants to establish socialism. • Preventing concentration of economic power: Initially, a few leading industrial and business houses had close association with commercial banks. The directors of these banks happened to be the same industrialists who established monopoly control on the bank finance. They exploited the bank resources in such a way that the new business units cannot enter in any line of business in competition with these business houses. Nationalisation of banks, thus, prevents the spread of the monopoly enterprise. • Channel the bank finance to plan - priority sectors: Banks collect savings from the gen¬eral public. If it is in the hand of private sector, the national interests may be neglected, besides, in Five-Year Plans, the government gives priority to some specified sectors like agriculture, small-industries etc. Thus, nationalization of banks ensures the availability of resources to the plan-priority sectors. • Greater mobilization of deposits: The public sector banks open branches in rural areas where the private sector has failed. Because of such rapid branch expansion there is possi¬bility to mobilize rural savings. • Small stake of shareholders: The nationalized banks had deposits totaling Rs. 2742 crore at the end of December 1968. But the capital contributed by their shareholders was only Rs. 28.5 crore, which was just 1% of deposits. Even if we include the reserves, the amount comes to only 2.4% of the bank’s deposits with such a small and insignificant stake, it is unjustifiable to allow the private shareholders to exercise control over such vital credit machinery with large resources. • Better service conditions to staff: Nationalisation ensures the staff of banks to enjoy greater job security and higher emoluments. It can provide other benefits as well. In this way the banks can motivate their staff and thereby the operational efficiency of banks will be increased. Thereafter, her move was swift and sudden. The Government of India issued an ordinance (Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969)) and nationalized the 14 largest commercial banks with effect from the midnight of 19 July 1969. These banks contained 85 percent of bank deposits in the country. Jayaprakash Narayan, a national leader of India, described the step as a masterstroke of political sagacity. Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969. a. Central Bank Of India b. Bank Of Maharashtra c. Dena Bank d. Punjab National Bank e. Syndicate Bank f. Canara Bank g. Indian Bank h. Indian Overseas Bank i. Bank Of Baroda j. Union Bank Of India k. Allahabad Bank l. United Bank Of India m. UCO Bank n. Bank Of India A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India. 1. Andhra Bank 2. Corporation Bank 3. Oriental Bank Of Commerce 4. Punjab & Sindh Bank 5. Vijaya Bank 6. Bank Of Rajasthan Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalized banks from 20 to 19. After this, until the 1990s, the nationalized banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.
Posted on: Fri, 29 Nov 2013 02:31:30 +0000
Trending Topics
Recently Viewed Topics
© 2015