Nationalisation of Banks

Nationalisation of Banks

The Indian banking system passed through a series of crises and hence its growth was very slow during the first half of the 20th century. But after Independence, the Indian banking system recorded rapid progress. This was due to planned economic growth, increase in money supply, growth of banking habit, setting up of the State Bank of India and its associate banks in the 1950s, the control and guidance by the Reserve Bank of India and above all nationalization of the 14 commercial banks in July 1969, and 6 more banks in 1980 by the Government.

Prior to nationalization, it was believed by some economists that Indian commercial banking system did not play its role in the planned development of the nation. The banking system was controlled by the leading industrialists and business magnates. They used public funds to build up private industrial empires. Small industrial and business units were consistently ignored. Agricultural credit was never seriously considered. Therefore Government of India took over 14 commercial banks in July 1969 and 6 other banks in April 1980.

The commercial banking sector in India has within its fold the following

banks.

The State Bank of India

The seven associated banks of State Bank of India.

Twenty nationalized Banks.

Indian joint stock commercial banks

Foreign banks functioning in India

Regional Rural Banks.

Performance of Nationalized Banks

The most important benefit of nationalization of commercial banks was the achievement of homogeneity and strength as well as cohesion in the banking structure of India, affording a better environment for effectively implementing banking and monetary policies of the government.

The working of the commercial banks after nationalization show that they have made a complete departure from the old conservative banking practices and moving towards the objectives set forth in various fields of their operations. They have made significant achievements in the sphere of 'branch expansion', deposit mobilization, production-oriented financing, extension of credit to neglected sectors and creating new vistas in banking.