NATIONALIZATION OF COMMERCIAL BANKS

PRESENTED BY NISHA P SOMU S4, MBA SMBS

Introduction
Nationalization of commercial banks is the most noteworthy development in the field of Indian commercial banks. Banking law (amendment) Act was passed in 1968. It gave power to the Central Government to exercise control over commercial banks. But the government was not satisfied with these actions. It came forward to nationalize 14 major commercial banks on 19th July 1969. Again on April 15, 1980, 6 more commercial banks were nationalized. This step was taken by the government in the light of its decision to raise the share of advances to the priority sectors from 33 % to 40 %. The nationalization of 14 major commercial banks which has deposits of not less than Rs 50 crores each in July 19, 1969 and another six banks in 1980 was described as a historic event in the history of Indian Banking.

Nationalization - Definition

Takeover of privately owned corporations, industries, and resources by a government with or without compensation. Common reasons for nationalization include (1) prevention of unfair exploitation and largescale labor layoffs, (2) fair distribution of income from national resources, and (3) to keep means of generating wealth in public control.

Objectives Of Nationalization Of Banks

1.Removal of concentration of economic power in the hands of a few. 2.Channelisation of credit towards priority sectors such as agriculture , small industries, transport and exports. 3. To provide credit to new class of entrepreneurs like self employed artisans, craftsmen, engineers, doctors etc. 4. Provision of adequate training as well as reasonable terms of service for bank staff. 5. To give a professional bent of bank management. 6. To extent banking facilities in unbanked rural areas. 7. To enable the Reserve Bank to have greater control over commercial banks.

Arguments For Nationalization (Causes Of Nationalization)

Concentration of economic power Need to provide funds to priority sector Neglectfulness of agriculture sector Misuse of funds Speculative activities Lack of professional expertise Failure to mobilize resources Discrimination against small business Elimination of wasteful competition Safety of depositors Strengthen banking system Socialistic view

Arguments against Nationalization

Nationalization may not lead to socialism Diminution of efficiency Control on monopolies Removal of malpractices Risk involved in lending to agriculturists No need of security to depositors Political interference Compensation burden

Achievements of Nationalization
(a) Development of banking industry 1. Developments in the role 2. Branch expansion 3. Branch Expansion in rural areas 4. Deposit mobilization 5. Change in the composition of deposits 6. Credit expansion 7. Investment in securities 8. Finance to public sector undertakings 9. Change in the attitude (b) Financing to priority sector 1. Finance to Agriculture

Cont
2. Finance to small scale industries 3. Finance to export promotion 4. Small road and water transport operators 5. State Sponsored Bodies for Scheduled Casts and Tribes 6. Retailers 7. Housing loans

14 Banks Nationalized in the first phase of Nationalization (on 1969)

Allahabad Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of I ndia Dena Bank Indian Bank Indian Overseas Bank Punjab National Bank Union Bank of India Syndicate Bank United bank of India UCO Bank

6 Banks Nationalized in the second phase of Nationalization (on the last Friday of March 1980)
Punjab & Sindh Bank Andhra Bank New Bank of India Vijaya Bank Oriental Bank of Commerce Corporation Bank

Lending Policies of the Nationalized commercial Banks

The banks may not be able to build up a comprehensive system of credit planning with the expected degree of sophistication unless we have an accurate, imaginative and effective information system at all levels of management within the bank and outside. Efforts are required by the nationalized banks for checking the diversion of financial resources from backward States (including Goa, Himachal Pradesh, Jammu & Kashmir, Punjab, Andaman & Nicobar Islands and Lakshadweep besides the above mentioned states to other States and raising their credit ratio up to 80% of the national average. The share of the metropolitan areas in total credit should be reduced to 25% from 53.9% in 1995-96. It is felt that the concessional rates of interest on priority sector credit and the DRIS should be maintained. On other issues relating to bank credit the recommendations of the Narasimham Committee (1991 and 1998) are by and large in the right direction.