Second Phase of Bank Nationalization (1980)
The second phase of bank nationalisation in India took place on 15 April 1980, further consolidating the public sector–led banking framework established in 1969. This phase extended the philosophy of social control and development-oriented banking by bringing additional large private banks under government ownership. With this move, India’s banking system became overwhelmingly public sector–dominated, reinforcing the state’s role in directing credit towards national development priorities.
Background to the 1980 Nationalisation
Following the first phase of nationalisation in 1969, public sector banks expanded rapidly into rural and semi-urban areas and increased lending to priority sectors. However, by the late 1970s, a few sizeable private banks still remained outside government control. Some of these banks had grown substantially, crossing high deposit thresholds and acquiring significant regional influence.
Policymakers feared that allowing large banks to remain privately owned could recreate concentration of economic power and weaken the government’s ability to guide credit allocation. The second phase of nationalisation was therefore designed to complete the restructuring of the banking system and prevent the emergence of powerful private banking entities.
Banks Nationalised in the Second Phase
In April 1980, the government nationalised six additional private commercial banks, each of which had attained considerable size and importance. These banks were:
- Oriental Bank of Commerce
- Punjab & Sind Bank
- Vijaya Bank
- Corporation Bank
- Andhra Bank
- New Bank of India
With these additions, the total number of nationalised commercial banks (excluding the State Bank group) increased to 20. Including the State Bank of India and its associate banks, public sector banks came to dominate the Indian banking system.
Extent of Public Sector Dominance
By 1980, public sector banks accounted for around 90 per cent of total bank deposits in India. Except for a limited number of regional private banks and foreign banks, commercial banking became almost entirely state-owned. This marked one of the most extensive public sector banking structures in the world.
After this phase, no further bank nationalisations were undertaken. In fact, a law enacted in 1990 stipulated that any future nationalisation of banks would require explicit approval from Parliament, signalling a formal closure of the nationalisation era.
Objectives and Rationale of the Second Phase
The objectives of the 1980 nationalisation closely mirrored those of 1969 but were aimed at reinforcing and completing earlier reforms. A primary goal was to prevent large private banks from remaining outside public ownership, especially those that had crossed the ₹200 crore deposit mark.
Another important rationale was to strengthen the government’s ability to implement directed credit programmes. By bringing almost all major banks under state control, policymakers ensured uniformity in lending policies related to agriculture, small-scale industries, exports, and weaker sections of society.
The second phase also sought to maintain the momentum of financial inclusion and regional balance. Public sector banks were expected to continue branch expansion in underbanked regions and deepen their involvement in rural credit delivery.
Role of Nationalised Banks in the 1980s
Following the second phase, nationalised banks became the primary vehicles for government-led development programmes. They played a central role in priority sector lending, poverty alleviation schemes, and employment-oriented credit initiatives throughout the 1970s and 1980s.
Alongside commercial banks, cooperative banks and specialised financial institutions continued to operate. New sector-specific institutions were also created to support targeted development. For example, the National Bank for Agriculture and Rural Development was established in 1982 to strengthen agricultural and rural credit. However, nationalised commercial banks remained the backbone of India’s formal credit system.
Significance of the Second Phase of Nationalisation
The second phase of bank nationalisation completed India’s transition to a predominantly public sector banking system. It ensured government control over credit allocation, reinforced social banking objectives, and prevented reconcentration of financial power in private hands.