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 Nationalization Of Commercial Banks


(i) Private ownership of commercial banks and concentration of economic power – Until nationalization, all major banks were controlled by one or more business houses. These business houses used the resources contribute by the mass of the people for their own personal benefits. They financed those projects, which ultimately enhanced their own financial resources. Thus, private ownership of banks resulted in concentration of income and wealth in few hands.


(ii) Urban–bias – Prior to nationalization, commercial banks had shown to interest in establishing officers in semi–urban and rural areas. More and more branches were opened in cities resulting in concentration of banking facilities in urban area.

(iii) Neglect of agricultural sector – There was a total neglect of the agricultural sector and its finance prior to nationalization of banks. The banks increasingly advanced finances to commerce and industry with the result their share in the scheduled banks advances increased from 70 per cent in 1951 to 87 per cent in 1968. Agriculture accounted for only 2.2 per cent of the total advances.

(iv) Violation of norms – Commercial banks often violated the norms and priorities laid down in the plans and granted loans to even those industries, which figured nowhere in the priority list.

(v) Speculative activities – Private commercial banks earned large profits and indulged in speculative activities. They even extended advances to hoarders and black marketers against high rates of interest.

(vi) Neglect of priority sectors – Not only there was a complete neglect of agricultural sector, other sectors such as export, small–scale industries etc. were also completely neglected.

In order to discipline the commercial banks so that they do not over look the national priorities, nationalization of banks was undertaken first in 1969 and then in 1980. 

Objectives Of Nationalization


Nationalization was meant for an early realization of the objectives of social control which were as follows:

(i) Removal of control by a few;

(ii) Provision of adequate credit for agriculture and small industry and export;

(iii) Giving a professional bent to management;

(iv) Encouragement of new class of entrepreneurs; and

(v) The provision of adequate trading as well as terms of services for bank staff.

Progress Of Commercial Banks After Nationalization


After the nationalization of banks in 1969, commercial banking operations have become an integral part of India’s economic policy. Following development have taken place since nationalization in 1969:


(i) Expansion of branches – There has been an unprecedented growth in the branch network since nationalization. Compared to just 8262 branch officers in 1969, the number of branch office in 2005 has increased to 68500 indicting a greater access to banking facilities to the common man. As a result, the population per bank office has reduced from 55,000 in 1969 to 16,000 in 2005.


(ii) Branch opening in rural and unbanked areas – There has been a qualitative change in branch expansion programme ever since the nationalization of banks. Before nationalization, there was a clear urban bias in the operations of banks. But after nationalization they have started moving towards rural and less developed areas. This will be clear from the fact that compared to just 22 per cent bank offices in rural areas in 1969, the percentage of rural branches bank improved to about 47 per cent in June, 2005. This has helped in checking imbalances in disbursement of banking finance in India.


(iii) Deposit mobilization – There has been a substantial rise in the rate of deposit mobilization since nationalization. The aggregate deposits of commercial banks have increased from Rs. 4,665 crore in 1969 to around Rs. 17,57,846 crore in June 2005 forming almost fifty per cent of the national income. Considering state–wise deposit mobilization, we find Maharashtra leads all other states and accounts for more than one–fifth of the aggregate deposits received by the banks. It is followed by Delhi, Uttar Pradesh, West Bengal Tamil Nadu, Karnataka and Andhra Pradesh. These all together account for 67 per cent of the aggregate deposits of the banks.


(iv) Bank lending – There has been a speculator rise in the bank lending since nationalization of banks in 1969. It has gone up from Rs. 3399 crore in June, 1969 to more than 11,69,090 crore in March, 2005. The banks have taken special care of the priority sectors in their lending operations. In 1969, agriculture, small scale industries and small retail trade accounted for about 14 per cent of the commercial banks credit. This percentage has gone up to about 40 per cent in March, 2004.


(v) Promotion of new entrepreneurship – Banks, of late, have been financing the schemes, which promote entrepreneurship. For example, they have been activity participating in schemes such as IRDP, TRYSEM, JRY, NRY etc. Moreover, in their lending operations they now give high priority to the relevance of the project for the economy as a whole along with genuine business productive requirements of the borrowers.


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