History of nationalisation of banks
| Date :19-Jul-2019 |
By Sudhakar Atre:
FIFTY years ago at mid night of on 19 th July 1969 the then Prime Minister of India Indira Gandhi nationalised 14 major banks by an ordinance.The debate still continues whether it was a political decision taken by Mrs Gandhi for asserting her own supremacy within the then ruling Congress party by projecting herself as a leader of downtrodden or really a bold economic decision which changed the course of economy of India. There were sharp reactions, legal battles and intense back room theories but it is widely accepted that she not only scored over her senior rivals in the Congress party later known as Syndicate but also won over the masses.
Millions of people, who had never dreamt of entering the banks in their life as banks were considered to be meant for elites exclusively, celebrated the event for weeks. The ordinance nationalised 14 biggest private sector banks with deposits of Rs 50 crore and above. It may seem to be a very meager amount today but the total deposit of all these 14 banks was Rs 4,646 crore and advances were Rs 3,599 crore at that time. They had total 8,268 branches, out of which only 1,833 in rural areas.
It may sound strange that total credit to agriculture sector was only Rs 162 crore at the time of nationalisation. Again in 1980, when Mrs Gandhi was re-elected as the Prime Minister for third term she initiated a second stage of bank nationalisation. This time six more private banks were nationalised and all these 20 nationalised banks controlled over 90 percent of the banking business in the country. Out of the 20 banks that were nationalised, New Bank of India was later on merged with PNB in 1993.This was also first merger between two nationalised banks.
Objectives behind nationalisation of banks in India:
1) Social Welfare: It was the need of the hour to direct the funds for the needy Sectors of the Indian economy such as agriculture and village industries for expansion.
2) Controlling Private Monopolies: Before nationalisation most of the banks were owned and controlled by private corporate business houses and were catering to their needs only. It was necessary to regulate these monopolies in order to ensure a smooth availability of credit to socially desirable sections.
3) Expansion of Banking: It was necessary to spread banking across the country and open bank branches in unbanked centres for which private sector banks were unwilling.
4) Reducing Regional Imbalance: There was a huge imbalance between developed and underdeveloped states as most of the banks were concentrated in industrially developed metros only.
5) Priority Sector Lending: The agriculture and small scale industries are backbone of socio economic scenario of the country which were totally neglected by then private sector banks. The discussion on nationalisation of banks subject will not be complete without discussing State Bank of India (SBI) which has an interesting history. During the rule of East India Company there were three prominent banks in the country which were called as Presidency banks namely Bank of Calcutta which was established in 1806 and renamed as Bank of Bengal in 1909, Bank of Bombay established on 15th April 1840 and Bank of Madras established on 1st July 1843. These three Presidency banks were merged to form The Imperial Bank of India on 27th January 1921 which in turn was rechristened as State Bank of India on 1st July 1955. GoI owned 60% stake in SBI through RBI. However in order to remove conflict of interest GoI acquired entire stake of RBI in SBI in 2008. In 1959, the Government Act which enabled SBI to take over eight banks belonging to erstwhile princely states, making these eight banks as subsidiaries of SBI and later called as Associate Banks of SBI.
These were State Bank of Patiala, State Bank of Bikaner, State Bank of Jaipur, State Bank of Hyderabad, State Bank of Maysore, State Bank of Travancore, State Bank of Sourashtra and State Bank of Indore. In 1963 State Bank of Jaipur and State Bank of Bikaner were merged. On 13th August 2008 State Bank of Saurashtra was merged with SBI. Then on 19th June 2009 the State Bank of Indore was merged with SBI. And finally on 1st April 2017 all Associate Banks of SBI along with Bharatiya Mahila Bank which was launched on 25th September 2013 were merged with SBI to form a mega bank. This is the history of nationalisation of banks in India in nut shell. Whether nationalisation of banks has achieved its objectives or not and if yes, to what extent is a subject matter of further discussion. (The author can be contacted at sudhakaratre@gmail.com)
