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Social Control and

Nationalization of Banks
2

VASANTH KUMAR.C
JR,M.SC(AGRI )
DEPT OF AGRIL. ECONOMICS

UAS GKVK BANGALORE

17-12-2013

2-33 17/12/2013
S
O Banking Scenario Prior to Nationalization
C 3
I
A The private sector banks being predominantly urban
L
oriented and controlled by few large industrialists

C were not properly equipped to help the achievement

O of the basic socio-economic objectives.
N
The credit needs of agriculture ,small scale industries
T
R and weaker sections were totally neglected.
O
L
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S
O The bulk of the deposits mobilized
4
C was advanced to the industry sector
I and the priority sector agriculture
A received barely 1%.
L
In absence of financial institutional
protection, the agricultural credit
C
scene was dominated by private
O
moneylenders charging exorbitant
N
rate of interest.
T
R All these compelled the imposition

O of social control over banks in 1968.

L
4-33
17/12/2013
S
O
The social control scheme
5
C
I Reconstitution of Board of Directors –i.e.51% of them should
A have specialized knowledge on accountancy,agriculture,rural
L
economy ,banking, cooperation, economics, finance,law,small
scale industries and other matters useful to the banking
C
O company.
N Appointment of a whole time chairman.
T Imposition of restriction on loans to be granted to the director’s
R
concern.
O
L
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S
O The scheme also provided for take over of banks by the Govt.
6
C
under certain circumstances.
I
National credit council was setup to perform certain specific
A
functions relating to credit to priority sector.
L
The major objectives,

C wider spread of bank credit,

O directing large volume of credit flow to the priority sector and
N reducing the authority of the members of the managing
T
committee ,since they acted as the representatives of the
R
industrialists.
O
L
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S
O
Situation after social control scheme
7
C
I Created the tempo of branch expansion initially.
A
No significant achievement was made in channelizing adequate
L
credit to the priority and weaker sections.

C In many banks, the policies were controlled by those ,who had

O controlled these banks earlier.
N The directions issued by the Government were ignored by many
T
banks.
R
O
L
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 The consequent impact
S
O
8
C
I The Government believed that social control was
A not sufficient to make the commercial banking
L system meaningful for socio economic
development.
C Bank nationalization was considered as the
O alternative solution.
N
T
R
O
L
8-33 17/12/2013
 The Remedial move
S
O
9
C
I Demand for nationalization of commercial banks was
A raised quite frequently in the past.
L 12 point programme was placed in the Bhubaneswar
session of the congress party in 1964 to mitigate the
C entire range of economic and Social evils.
O The Govt. did not accept that due to administrative
difficulties and other consequential effects in the
N
economy.However,social control was introduced on 1st
T February,1969 through the enforcement of legislative
R measures.
O
L
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 Brief History of Indian Banking
10

Before the enforcement of Banking Regulation Act,1949 there

was little control and regulation on banking business.

Results:Mushrooming Growth of public banking companies.

Gradual liquidation of the act results-closure and liquidation,

Amalgamation of the banks into another.

Failure of the Palai central Bank in 1960-A turning point in the

Indian Banking Scenario.

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N
A Nationalization of Banks
T 11

I Promulgation of the banking companies (Acquisition and

O Transfer of undertaking) ordinance 1969. on July 19,1969 under
N
which 14 commercial banks with deposits over Rs.50 crore each
A
were Nationalized.
L
I When the government of any country takes the ownership of any
Z industry or enterprise in its own hand, then this process is
A known as nationalization.
T The term social control does not mean nationalization of the
I banks.
O
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N
A
T 12

I
 The difference between social control and
O
nationalization is that in nationalization both
N
the ownership and control are taken up by the
A
government, while in social control
L
ownership does not rest in the government.
I
 Social control implies restricted freedom to
Z
A
the bankers, it will give more powers to the
central government and credit will be
T
regulated for the social welfare.
I
O
N12-33 17/12/2013
N
A The main objectives of
T Nationalization
13

I
As set out by the then prime minister, smt.Indira Gandhi, were
O
N Removal of control on banking business by a few industrialists:
A Prior to nationalization many banks were controlled by private
L business houses and corporate families. It was necessary to check
I these monopolies in order to ensure a smooth supply of credit to
Z socially desirable sections.
A
Elimination of the use of bank credit for speculative and
T
I unproductive purposes.
O
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N
A
T 14

I
O Expansion of credit to priority areas which were grossly
N
neglected like agriculture and small scale industries.
A
L Giving a professional bent to the bank management .
I Encouragement of new classes of entrepreneurs.
Z
Provision of adequate training as well as reasonable terms
A
of service to bank staff.
T
I
O
N14-33 17/12/2013
N
A
T 15

I
Developing Banking Habits : In India more than 70%
O
population used to stay in rural areas. It was necessary to
N
A develop the banking habit among such a large population.
L Reducing Regional Imbalance : In India where we have a
I urban-rural divide; it was necessary for banks to go in the
Z
rural areas where the banking facilities were not available.
A
In order to reduce this regional imbalance nationalization
T
was justified
I
O
N15-33 17/12/2013
N
A 14 Nationalized banks (1st spell)
T 16

I
O 1.central bank of India
N
A 2.Bank of India
L
I 3.Punjab National Bank
Z
A
4.Bank of Baroda
T
I
O
N16-33 17/12/2013
N
A
T 17

I
5. United commercial Bank
O
N
A 6.Canara Bank
L
I 7. United Bank of India
Z
A
8.Dena Bank
T
I
O
N17-33 17/12/2013
N
A
T 18

I 9.Union Bank
O
N
A
10.Allahabad Bank
L
I
Z
A11.Syndicate Bank
T
I
O
N18-33 17/12/2013
N
A
T 19

I
O 12.Indian Bank
N
A
L 13.Bank of Maharashtra
I
Z 14.Indian overseas bank
A
T The 14 Banks together had 4,134 Baranches with
I deposits of Rs.2,626 crore and advances of Rs.1,813
crore.
O
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N
A After 1st spell of Nationalization

T 20

I Between June 1969 and June 1975, 8,755 offices were

O
opened by public sector banks, of which 4,337 offices were
N
A in urban areas.
L The number of public sector bank offices went up from
I 6,596 in June 1969 to 15,077 in June 1975.
Z
The average population served per bank branch declined
A
T markedly from 65,000 in June, 1969 to 32,000 by June,
I 1975.
O
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N
A Second spell of Nationalization
T 21

I  Encouraged by the success of first spell of

O nationalization of banks, six more banks in the
N private sector, having deposits more than Rs.200
A crore were nationalized on 15th April 1980.
LThe six banks were,
I 1.Punjab & Sind Bank
Z
A
2.Andhra Bank
T
I
O
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N
A 3.New Bank of India
T 22

I 4.Vijaya Bank
O
N
5.Oriental Bank of Commerce
A
L
I 6.Corporation Bank
Z
AIn 1993,The New Bank Of India was merged with
T Punjab national Bank consequent to which
I Nationalized Banks stands as on Today 19.
O
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N
A
T 23

I
O
N
A
L
I
Z
A
T
I
O
N23-33 17/12/2013
N
A Arguments in favour of nationalization
T of banks
24 in India
I  Prevention of trade cycles: a/c to Keynes,
O banks plays a very important role at the time of boom
N (or) depression.
A The boom and depression follow each other at regular
L intervals.
I fluctuations harm to the economy of the country.
Z it is essential to exercise control on these business
fluctuations in the interest of the healthy development
A of the economy the government can keep the effective
T control on the volume of credit only if the banks are
I nationalized.
O
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N
A
T 25

I  Improvement in efficiency.
O Socialistic pattern of society.
N Effective economic planning.
A
 Security to depositors.
L
 Removal of inter bank competition.
I
 Utilization of bank credit in national interests.
Z
 Encouragements to savings.
A
 Utilization of banks profit in national interests
T
I  Development of specialized banks.
O
N25-33 17/12/2013
N
A Arguments against nationalisation of banks
T 26

I  Lack of able, efficient and experienced employees.

O Adverse effects on the development of private sector.
N
 Lack of financial secrecy.
A
L
I
Z
A
T
I
O
N26-33 17/12/2013
N
A Achievements of nationalized banks
T 27

I The main achievements of the nationalized banks

O
 Expansion of bank branches
N
 Financial accommodation to the neglected sections
A
L Financial accommodation to the unemployed
I youth.
Z Loans to sick industrial undertakings
A District survey for banking development
T
I
O
N27-33 17/12/2013
N
A Failures of nationalized banks
T 28

I
 Deterioration in the services of the banks.
O
N Failure to mobilize adequate deposits
A
L Failure to provide competent and efficient bank staff
I  Neglect the priority sectors
Z
A
T
I
O
N28-33 17/12/2013
N
A Evolution Stages
T 29

I
O
N
A
L
I
Z
A
T
I
O
N29-33 17/12/2013
N
A Banks in agricultural sector
T 30

I  Nationalization of banks was a major step for

O channelizing credit to various sectors of economy of
N which agriculture is a major sector.
A A dynamic and growing agricultural sector needs
L adequate finance through banks to accelerate the
I overall growth.
Z
A
T
I
O
N30-33 17/12/2013
N
A Flow of credit to Agriculture
T 31

I
O
N
A
L
I
Z
A
T
I The target for agricultural credit in
O 2013-14 is Rs7,00,000 crore.
N31-33 17/12/2013
R
References
32
E
F http://indiabudget.nihttp
E http://finance.indiamart.com
R http://www.rbi.org.in
E http://www.epw.in
N http://www.hindu.com
C https://www.youtube.com
E
http://www.preservearticles.com
S

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H
THANK YOU
E

E
N
D

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