Nationalization of Indian Commercial Banks Albert D’costa SYMFSM (ADMI) Roll No : 01
Definition : Commercial Bank• An institution which accepts deposits, makes business loans, and offers related services. Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and time deposit• These institutions are run to make a profit and owned by a group of individuals• While commercial banks offer services to individuals, they are primarily concerned with receiving deposits and lending to businesses
Definition: Nationalization• To convert from private to governmental ownership and control• Nationalized Bank refers to Government Undertaking or Government ownership and control to serve the public, businesses (public or private)
Objectives behind Nationalization• Social Welfare : It was the need of the hour to direct the funds for the needy and required sectors of the Indian economy. Sector such as agriculture, small and village industries were in need of funds for their expansion and further economic development• Controlling Private Monopolies : Prior to nationalization many banks were controlled by private business houses and corporate families. It was necessary to check these monopolies in order to ensure a smooth supply of credit to socially desirable sections• Expansion of Banking : In a large country like India the numbers of banks existing those days were certainly inadequate. It was necessary to spread banking across the country. It could be done through expanding banking network (by opening new bank branches) in the un-banked areas• Reducing Regional Imbalance : In a country like India where we have a urban- rural divide; it was necessary for banks to go in the rural areas where the banking facilities were not available. Reduction of this regional imbalance was needed• Priority Sector Lending : In India, the agriculture sector and its allied activities were the largest contributor to the national income. Thus these were labeled as the priority sectors. But unfortunately they were deprived of their due share in the credit• Developing Banking Habits : In India more than 70% population used to stay in rural areas. It was necessary to develop the banking habit among such a large population
History of Indian BanksThree Phases (Time Period) – Early phase from 1786 to 1969 of Banks (Phase I) – Nationalization of Banks up to 1991 (Phase II) – Advent of Indian Financial & Banking Sector Reforms after 1991 (Phase III)
Phase I -Setup• The General Bank of India was set up in the year 1786 followed by Bank of Hindustan and Bengal Bank• The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks• These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders• In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. RBI came to existence in 1935• There were approximately 1100 banks, mostly small.
Phase I – Main Points• Public has lesser confidence in the banks• Deposit mobilization and growth was very slow• Banks also experienced periodic failures• Savings bank facility provided by the Postal department was comparatively safer• Moreover, funds were largely given to traders• Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965)• Reserve Bank of India was vested with extensive powers for the supervision of banking in india as the Central Banking Authority.
Phase II - Steps• 1955 : Nationalization of State Bank of India – Imperial Bank of India with extensive banking facilities on a large scale specially in rural and semi-urban areas• 1959 : Nationalization of SBI subsidiaries – Seven banks forming subsidiary of State Bank of India was nationalised in 1960 – The effort of the then PM of India, Mrs. Indira Gandhi.• 1969 : Nationalization of 14 major banks• 1971 : Creation of credit guarantee corporation• 1975 : Creation of regional rural banks• 1980 : Nationalization of seven banks
Phase II – Main Points• It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country• Insurance cover extended to deposits in 1961• Nationalization of seven banks with deposits over 200 cr• After the nationalization of banks, the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump• Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions.
Phase III – Main Points• Phase has introduced many more products and facilities in the banking sector in its reforms measure• Country is flooded with foreign banks and their ATM stations• Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced.• The entire system became more convenient and swift. Time is given more importance than money• Financial system of India has shown a great deal of resilience
Commercial Banks - Types• Types – Scheduled Commercial Banks in India – Unscheduled Banks in India
Types of Commercial Banks• Scheduled Bank – Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the below criteria laid down vide section 42 (6) (a) of the Act. • (a) direct the inclusion in the Second Schedule of any bank not already so included which carries on the business banking 3[ in India] and which has a paid- up capital and reserves of an agregate value of not less than five lakhs of rupees, and • (b) satisfies the Bank that its affairs are not being conducted in a manner detrimental to the interest of its depositors, and • (c) 4. is a State co- operative bank or a company] as defined in 5[ section 3 of the Companies Act, 1956 (1 of 1956 ), or an institution notified by the Central Government in this behalf] or a corporation or a company incorporated by or under any law in force in any place 6[ outside India];
Types of Commercial Banks• Non-scheduled bank in India – “Non-scheduled bank in India" means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank“ – The Clause 5 (c) states a "banking company" means any company which transacts the business of banking in India; Explanation: Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause;
Scheduled BanksScheduled Banks in India Scheduled Banks in India(Public Sector) (Private Sector)State Bank of India State Bank of Bikaner Vysya Bank LtdState Bank of and Jaipur Axis Bank LtdHyderabad State Bank of Indore Indusind Bank LtdState Bank of Mysore State Bank of PatialaState Bank of Sta te Bank of ICICI Banking Corp Bank LtdSaurashtra Travancore Global Trust Bank LtdAndhra Bank Allahabad Bank HDFC Bank LtdBank of Baroda Indian Overseas Bank Centurion Bank LtdBank of India Indian Bank Bank of Punjab LtdBank of Maharashtra Oriental Bank ofCanara Bank Commerce IDBI Bank LtdCentral Bank of India Punjab National BankCorporation Bank Punjab and Sind BankDena Bank Syndicate Bank Union Bank of India UCO Bank Vijaya Bank
Scheduled BanksScheduled Foreign Banks in India:– American Express Bank Ltd.– ANZ Gridlays Bank Plc.– Bank of America NT & SA– Bank of Tokyo Ltd.– Banquc Nationale de Paris– Barclays Bank Plc– Citi Bank N.C.– Deutsche Bank A.G.– Hongkong and Shanghai Banking Corporation– Standard Chartered Bank.– The Chase Manhattan Bank Ltd.– Dresdner Bank AG.