Nationalization of Banks in India

What is meaning of Nationalization of Bank?

Nationalization refers to an act of taking an industry or assets into the public ownership. In context of banks, it means that banks which were earlier in private sector were transferred to the public Sector by the act of nationalization. Opposite of Nationalization is privatization.

What were need and objectives of nationalization?

Immediately after independence, the government had adopted planned economy and thus India embarked on a socialist path with first five year plan launched in 1951. One of the basic tenets of planned / socialist economy is social ownership of means of production. Further, the government had some social welfare schemes and needed banking sector support to fulfill those. Further, since private sector had monopoly over banking, the confidence of the people on banks was very low and this was a big hurdle in expansion of the banking in India. Thus, nationalization was seen as a remedy of many malaises. This includes the following:

  1. Banks under government would support the government to achieve its social welfare objectives by directing funds to needy sectors of economy.
  2. Monopoly of the private banks could be ended.
  3. Banking could be expanded into all parts of country because of people’s inherent confidence in government. The banking sector reforms 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.
  4. Taking banks to villages could help bridge the rural-urban divide.
  5. With nationalization, agriculture and allies activities could be given more funds.
What is difference between nationalized bank and public sector bank?

There is no difference.

Which was the first Nationalized Bank of India?

First nationalized bank of India was Imperial Bank of India, which was nationalized and renamed as State Bank of India (SBI) in July 1955 through SBI Act, 1955. 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.

Which 14 banks were nationalized in 1969?

In 1969, fourteen major private commercial banks were nationalized. These 14 banks Nationalized in 1969 are as follows:

  1. Central Bank of India
  2. Bank of Maharashtra
  3. Dena Bank
  4. Punjab National Bank
  5. Syndicate Bank
  6. Canara Bank
  7. Indian Bank
  8. Indian Overseas Bank
  9. Bank of Baroda
  10. Union Bank
  11. Allahabad Bank
  12. United Bank of India
  13. UCO Bank
  14. Bank of India
Which banks were nationalized in 1980?

The second major phase of nationalization occurred in 1980, when Government of India acquired the ownership of 6 more banks, thus bringing the total number of Nationalized Banks to 20. These 6 banks were:

  1. Punjab and Sind Bank
  2. Vijaya Bank
  3. Oriental Bank of India
  4. Corporate Bank
  5. Andhra Bank
  6. New Bank of India

This entire process resulted in 20 initialized banks in India by 1980. Out of the above six, New Bank of India was later merged into Punjab National Bank in 1993. This left 19 nationalized banks in India at that time.

What happened to private banks?

Some of the small and medium private banks at that time were allowed to function side by side with nationalized banks and the foreign banks were alow allowed to work under strict regulation.

What was result of nationalization of Banks?

After the two major phases of nationalization, around 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 percent in deposits, and advances took a huge jump by 11,000 percent. Government ownership gave the public implicit faith and immense confidence in the sustainability of public sector banks.


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