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Nationalization of

banks
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

Banking System in Earlier banks were not


India is dominated by in the hands of
nationalized banks government. They were
Banks which are in the hands of private
managed and owners who were high
controlled by the earners of the society.
government are This situation was
nationalized banks. before 1969.
These banks work
according to norms of
RBI.
Situation Prior to 1969
Allahabad Bank Syndicate Bank
Andhra Bank UCO Bank
Bank of Baroda Union Bank of India
Bank of India United Bank of India
Bank of Maharashtra Vijaya Bank
Canara Bank Indian Overseas Bank
Central Bank of India Oriental Bank of Commerce
Corporation Bank
Dena Bank Punjab and Sind Bank
Indian Bank Punjab National Bank
Reasons for
Nationalization
2. Commercial banks had facilitated the
concentration of economic power in the hands of
few and created monopoly in the country.

4. The priority sector was neglected. Banks did not


pay attention to credit needs to farmers, small
scale industries

6. Management lacked professional expertise.

8. Resources of banks were misused for benefit of


directors and their companies

10. 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 1st1969: 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
To check concentration of economic power
through equitable distribution of bank credit

To strengthen banking system by preventing bank


failure

To make bank finance available for productive


purposes in the priority sectors of the economy.

To extend banking services in rural areas.


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

3. To spread and diversify banking services to


underdeveloped and backward states.

5. To make credit planning part of larger national


plans.

7. To foster new class of entrepreneurs.

9. 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

70000
60000
50000
40000
30000
20000
10000
0
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.
60

50

40
Rural
30
Semi-Urban
20 Urban

10

0
1969 1999

Source: RBI quarterly handouts of 1998


Deposit Mobilization
1000000

900000 July 1969 –


800000
4,665 crores
700000

600000

Dec. 31 1999-
500000

400000

300000 9,88,099 crores


amount in
200000 crores

100000

0
1969 1999

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
400000

300000

200000
amount in crores
100000

0
1969 1999

Source: RBI quarterly handouts of 1998


Problems Faced After
Nationalization
1. Deterioration in quality of loan portfolio

2. Inadequacy of capital

3. Political interference

5. Overstaffing

7. Inadequate supervision and regulation

9. 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