Nationalization of Indian Commercial Banks The document discusses the history of nationalization of commercial banks in India. It occurred in three phases: [1] Early private banks from 1786 to 1969, [2] Nationalization began in 1955 with the State Bank of India and led to nationalization of 14 major banks by 1969, [3] Banking reforms began in 1991 introducing many new products and facilities with the entry of foreign banks. The objectives of nationalization were to direct funds towards priority sectors, control private monopolies, expand banking access across India, and reduce regional imbalances.

1. Nationalization of Indian
Commercial Banks
Albert D’costa
SYMFSM (ADMI)
Roll No : 01

2. 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

3. 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)

4. 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

5. History of Indian Banks
Three 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)

6. 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.

7. 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.

8. 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

9. 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.

10. 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

11. Commercial Banks - Types
• Types
– Scheduled Commercial Banks in India
– Unscheduled Banks in India

12. 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];

13. 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;

14. Scheduled Banks
Scheduled Banks in India Scheduled Banks in India
(Public Sector) (Private Sector)
State Bank of India State Bank of Bikaner Vysya Bank Ltd
State Bank of and Jaipur Axis Bank Ltd
Hyderabad State Bank of Indore Indusind Bank Ltd
State Bank of Mysore State Bank of Patiala
State Bank of Sta te Bank of ICICI Banking Corp Bank Ltd
Saurashtra Travancore Global Trust Bank Ltd
Andhra Bank Allahabad Bank HDFC Bank Ltd
Bank of Baroda Indian Overseas Bank Centurion Bank Ltd
Bank of India Indian Bank Bank of Punjab Ltd
Bank of Maharashtra Oriental Bank of
Canara Bank Commerce IDBI Bank Ltd
Central Bank of India Punjab National Bank
Corporation Bank Punjab and Sind Bank
Dena Bank Syndicate Bank
Union Bank of India
UCO Bank
Vijaya Bank

15. Scheduled Banks
Scheduled 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.

16. Thank you