Nationalization of Banks – 1969 and 1980
The banking sector reforms started immediately after the independence. These reforms were basically aimed at improving the confidence level of the public because in those days, most banks were not trusted by the majority of the people. Instead, the deposits with the Postal department were considered rather safe. Banking sector and Financial sector reforms are not static events but continuous processes happening even today and will keep continuing. Nationalization of Banks, consolidation, diversification and liberalization of the banking industry in the 1980s and 1990s were part of this ongoing process.
The first major step was Nationalization of the Imperial Bank of India in 1955 via State Bank of India Act. State Bank of India was made to act as the principal agent of RBI and handle banking transactions of the Union and State Governments. After that, in a major process of nationalization, seven subsidiaries of the State Bank of India were nationalized via the State Bank of India (Subsidiary Banks) Act, 1959. In 1969, fourteen major private commercial banks were nationalized. These 14 banks Nationalized in 1969 are shown in the below table.
|List of 14 Banks Nationalized in 1969|
|1.||Central Bank of India|
|2.||Bank of Maharashtra|
|4.||Punjab National Bank|
|8.||Indian Overseas Bank|
|9.||Bank of Baroda|
|12.||United Bank of India|
|14.||Bank of India|
The above was followed by a second phase of nationalization in 1980, when Government of India acquired the ownership of 6 more banks, thus bringing the total number of Nationalized Banks to 20. The private banks at that time were allowed to function side by side with nationalized banks and the foreign banks were allowed to work under strict regulation.
Impact of Nationalization of Banks
Nationalization of the Banks brought the public confidence in the banking system of India. After the two major phases of nationalization in India, the 80% of the banking sector came under the public sector / government ownership. After the nationalization of banks, the branches of the public sector banks in India rose to approximately 800 per cent in deposits, and advances took a huge jump by 11,000 per cent. Government ownership gave the public implicit faith and immense confidence in the sustainability of public sector banks.