Coupon Accepted Successfully!


Nationalisation of commercial banks

The factors that led to nationalisation of commercial banks are as follows:
  • Removal of private ownership of commercial banks and concentration of economic power: Prior to nationalisation, banks were controlled by business houses which used the savings of the public for their own personal benefits by financing selected projects that would benefit them. This resulted in concentration of wealth in the hands of a few. The small units and other priority sectors were deprived of funds. Thus, it was important to nationalise banks in the interest of the country.
  • To reach out to non urban areas: Prior to nationalisation, branches were opened in cities, thus neglecting the semi urban and rural areas. This not only led to concentration of banking facilities in urban areas, but also in depriving these facilities to a major chunk of our population. Out of about 5.6 lakh villages in India, only 5,000 were served by commercial banks. Ahmadabad, Mumbai, Kolkata, Delhi and Chennai had about 1/7th share in the number of branch offices and 50% share of bank deposits and bank credit. This led to the slow growth of the rural areas.
  • Low advances to agricultural sector: The banks advanced finances to commerce and industry, increasing their share in the scheduled bank’s advances from 70% in 1951 to 87% in 1968. Agriculture accounted for only 2.2% of the total advances. (See chart 1)
Description: 16959.png
  • Violation of norms: Commercial banks often granted loans to those industries which did not appear in the priority list. This was against the norm and priorities laid down in the plans.
  • Speculative activities: Commercial banks encouraged socially undesirable activities like hoarding, black marketing, etc. against high rates of interest.
  • Ignoring the priority sectors: Apart from neglecting the agricultural sector, the needs of other sectors such as export, small-scale industries etc. were unmet.

Test Your Skills Now!
Take a Quiz now
Reviewer Name