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CHAPTER4
NATIONALISATION OF INDIAN BANKS AND THEIR PROGRESS AFTER
NATIONALISATION
CHAPTER4
NATIONALISATION OF INDIAN BANKS AND THEIR
PROGRESS AFTER NATIONALISATION
The banks are the custodians of savings and powerful institutions to provide credit.
They mobilize the resources from all the sections of community by way of deposits and
provide them to industries and others by way of granting loans.
Soon after Independence, the demand for nationalization of banks in India was
raised by some leading members of the Congress party, the socialist and communist
parties. The nationalization of the Reserve Bank in 1949 was the first step in this
movement. Another important event was the passing of the Banking Regulation Act in
1949. This Act gave extensive controlling powers to the Reserve Bank and the
Government over the joint stock banks.
After some time, the question of nationalization of the Imperial Bank of India was
raised. British officers were changed in the management of this bank. Initially, due to its
lack of preparedness, the Government denied the need for nationalization of this bank.
However, in July 1, 1955 on the recommendation of the Rural Credit Survey Committee,
the Imperial Bank of India was renamed as the State Bank of lndia as per SBI Act 1954
and the State Bank Group was established in 1960 as per State Bank of India (Associate
Banks) Act 1959.
It was observed that the growth of Indian commercial banking was too slow and
deficient in many respects. Commercial banks were mainly managed by big business
houses. So concentration of wealth and economic powers was in the hands of a few
industrialists and monopoly business in banking system was created. Bank directors were
related to big business houses. They utilized banks' resources by granting of loans to the
companies in which they had interests. Thus, the resources of banks were misused.
The lending policy of the commercial banks was highly discriminatory. They did
not grant credit for the interest of the nation or for the development of the priority sectors.
Their major advances were distributed among large and medium-scale industries and big
and established business firms. They did not give attention to the requirements of priority
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sectors like agriculture, small-scale industries, exports etc. Bank finance was also
supplied to some antisocial or undesirable activities like hoarding, black-marketing,
speculation etc.
To overcome these deficiencies radical changes were needed in the structure and
functioning of commercial banks. In this respect, a new banking policy was initiated by
the Congress Government in 1967, described as the 'social control of banks'. The
concept of 'social control' was in fact, introduced by the AICC Resolution on the eve of
the Fourth General Elections. 'Social Control' of banks was deemed to be a midway
between complete social ownership, i.e. nationalization and maintenance of the status
quo. According to the AICC Resolution, social control means greater participation of
banks under the effective guidance of the State in the mobilization of deposits and
allocation of credits to the socially desirable sectors of the economy, which would ensure
enlarged material benefits to the nation at large.
The scheme of social control of banks, was introduced by the Government on
December 14, 1967, when the then Finance Minister Morarji Desai made a statement in
the Lok Sabha while explaining its objectives, main features and the mode of functioning.
In this statement, Mr. Desai categorically stated that there was no need for nationalizing
banks at that time and social control measures alone would effectively serve the purpose.
He explained that the aim of social control was "to regulate our social and
economic life so as to attain the optimum growth rate for our economy and to prevent at
the same time monopolistic trend, concentration of economic power and misdirection of
resources".
Government took several steps to exercise social control over banks to make
banking more purposeful, more dynamic and more helpful to the common man. These
steps are discussed as follows:
A) A National Credit Council (N.C.C) at an all-India level was established in
December 1967. It was basically designed as an instrument of credit planning.
The National Credit Council consisted of representatives from large, medium and
small-scale industries, agriculture, cooperative sector, trade and bankers and
professional accountants. The Finance Minister was its Chairman and the
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Governor of the Reserve Bank was vice-chairman. It started its function from
February 1968. The main functions of the N.C.C were
(i) to assess the demand for bank credit from different sectors of the
economy;
(ii) to determine priorities for granting loans and advances for investment,
considering the availability of resources and the requirements of the
priority sectors, particularly, agriculture, small-scale industry and
exports;
(iii) to co-ordinate lending and investment policies as between commercial
banks and the specialized agencies with a view to ensuring an
optimum and efficient utilization of resources and
(iv) to tackle other related issues as may be referred to it by the chairman
or the vice-chairman of the Council.
B) The Banking Laws (Amendment) Act was passed in December 1968 as legislative
measure for social control over banks and came into effect from 1.2.1969. Main
provisions of this new Act are discussed below:
(i) The majority of directors of a Bank had to consist of persons having
special knowledge or practical experience in any of the areas such as
accountancy, agriculture and rural economy, banking, co-operative,
economics, finance, law, small-scale industries etc.
(ii) Bigger banks had to be managed by whole time chairman possessing
special knowledge and practical experience of working in a banking
company or in finance, economics or business administration.
(iii) At least two directors had to possess special knowledge and practical
experience in respect of agriculture, rural economy and co-operation.
(iv) The banks were also prohibited from making any loans or advances,
secured or unsecured to their directors or to any companies in which
they had substantial interest.
(v) The Reserve Bank was, however, empowered to appoint, remove or
terminate the services of the chairman, any director, the chief
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executive officer or any other officer or employee of a bank, under
specific circumstances.
(vi) All foreign banks were to set up an advisory board consisting of
Indians and conduct their lending policies and activities under the
guidance of such an advisory board.
(vii) The Government had power to take over any bank in the country,
without resorting to legislation, in the interest of depositors and better
provision of credit.
C) In order to enlarge the commercial banks' role in agricultural finance, the
Agricultural Finance Corporation Ltd. was set up in I 968.
D) The RBI also introduced changes in its branch expansion policy, as guided by the
N.C.C for extending banking facilities to wider areas.
However, the social control measures were not able to achieve the desired social and
economic objectives. Therefore, the Government of India nationalized fourteen major
Indian banks each having deposits of Rs. 50 crore and above on 19th July 1969. No
foreign bank was taken over. The names of 14 banks taken over by the Government
under the Banking Companies (Acquisition & Transfer of Undertakings) Act of 1969 are:
Central Bank of India Ltd. (2) Bank of India Ltd. (3) Punjab National Bank Ltd. (4) The
Bank of Baroda Ltd. (5) The United Commercial Bank Ltd. (6) Canara Bank Ltd. (7)
United Bank of India Ltd. (8) Dena Bank Ltd. (9) Syndicate Bank Ltd. (1 0) The Union
Bank oflndia Ltd. (11) Allahabad Bank Ltd. (12) The Indian Bank Ltd. (13) The Bank of
Maharashtra Ltd. and (14) The Indian Overseas Bank Ltd.
On April 15, 1980, Government took over another six private sector banks whose
reserves were more than Rs. 200 crore each. The six banks taken over by the Government
under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 are
(1) The Andhra Bank Ltd. (2) The Punjab and Sind Bank Ltd. (3) The New Bank oflndia
Ltd. (4) The Vijaya Bank Ltd. (5) The Corporation Bank Ltd. and (6) The Oriental Bank
of Commerce Ltd.
In 1993, New Bank of India merged with Punjab National Bank. As a result, the
total number of public sector banks including SBI and its associates are 27.
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4.1 Reasons for nationalization Various authorities have given many reasons for the nationalization of major
commercial banks. Opinions given by them are discussed below:
A) The then Prime Minister, smt. Indira Gandhi:
According to the opinion of then P.M, Smt. Indira Gandhi, private sector banks were
nationalized (i) to remove control of few; (ii) to provide adequate credit facilities to
agriculture, small industry and exports; (iii) to give professional bent to bank
management; (iv) to encourage new classes of entrepreneurs and (v) to provide
adequate training as well as reasonable terms of service to bank staff
B) Other opinions of protagonists of nationalization:
(i) The Revenue Issue: Nationalization of banks would enable the Government
to obtain all the large profits of the banks as its revenue.
(ii) The Safety Issue: Nationalization of banks would safeguard and promote the
interests of depositors. As a result public would deposit very rapidly a large
amount of money.
(iii) The Monopoly Issue: All major private banks in India were controlled by
one big business house or the other or jointly by a few of them. Consequently,
concentration of wealth and economic power was in the hands of a few
industrialists. The directors of banks had close connections with numerous
companies of big business houses and they used to finance the companies in
which they had interests. Nationalization of banks was desirable to prevent
the spread of the monopoly enterprise. It would secure a great and strategic
control over the national economy.
(iv) The Use Issue: The benefit of commercial banks' massive financial resources
had gone largely to the big business which controlled these. The directors of
banks related to companies of big business houses financed the companies in
which they had interests and sometimes they financed each other's companies
on a reciprocal basis in order to prevent healthy competition. The
manipulation of bank advances helped in increasing some anti-social and
illegal activities such as hoarding, black-marketing etc. and creating artificial
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scarcity which resulted m continued pnce spirals in our economy.
Nationalization of banks would help in stabilizing the pnce levels by
eliminating artificial scarcity of essential goods and encouragmg m
development of bank resources for productive purposes.
(v) The Credit Issue: Private commercial banks adopted traditional approach in
their credit policy which was not conducive to a rapid, balanced development
of all the sectors of our economy. They gave preference to the organized
sectors like wholesale trade and medium and large industry rather than
smaller traders, industrialists and agriculturists for financing their resources.
Main object of these banks was to earn profits. Most of the bank credit
granted to industry was utilized by them for financing inventory holdings
rather than for its expansion. Therefore bank loans were not purpose-oriented
but were person-oriented or collateral-oriented. Nationalization of banks was
considered as important matter to allocate bank finance for the needs of
Indian economic development
(vi) The Priority Issue: Private Banks did not grant bank credit for the purpose of
national interest and development of priority sector. Bank credit was not
granted to needy farmers or small-scale industrialists or to new entrepreneurs.
Thus, nationalization of banks was desirable so that banking sector could
utilize its resources for the benefit of the priority sector under the schemes of
planned economic development of the country.
(vii)Rural Issue: Private sector banks were not interested in openmg their
branches in semi-urban and rural areas. Their activities were largely confined
to urban areas and mostly in metropolitan cities. After nationalization,
disparity in the spread of banking facilities would be removed and rural
banking would receive a big push through public sector banking.
(viii) The Service Motive Issue: By nationalization commercial banks would
change their function from profit motive to service motive in order to
achieving the goal of socialism.
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(ix) The Equality Issue: After nationalization, wide disparities in the salaries in
different commercial banks would be removed. Before nationalization top
executives of some private banks received unduly high salaries than their
counterparts in the public sector.
(x) The Tax Issue: The All India Bank Employees Association contended that
nationalized banks would check the incidence of tax evasion and black
money.
4.2 criticisms against nationalization of banks Various criticisms against nationalization of banks were also raised on the following
grounds:
1. It was erroneous to assume that after nationalization the Government would
secure large revenues by way of profits from banks. But according to the
statistical data of the Reserve Bank of India, a small portion of total profit earned
by the nationalized commercial banks went to Government after nationalization.
Nationalization also led to the payment of heavy compensation to the
shareholders of the private sector banks. This gave additional financial burden on
the Government.
2. It was feared that if banks were nationalized the state authorities would take
discriminatory policy in the granting of credit and the whole banking system
would come under political pressures. They would use financial resources for
political purposes rather than for productive purposes.
3. It was said that before nationalization private sector banks were involved in
malpractices and did not safeguard the interests of their depositors. But this
argument was wrong when the banks were performing their functions strictly
under the control of Reserve Bank and Banking Regulation Act. Moreover, the
Banking Regulation Act gave the Reserve Bank of India and the Government
extensive powers to inspect, control and direct the operations and administration
of banks in the interests of depositors as well as of the nation. Further, Deposit
Insurance Corporation was established to protect the interests of the depositors.
In this situation, the argument that nationalized banks would get greater
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confidence from the public and secure larger deposits from it had no validity.
State monopoly in banks would result in irresponsibility, inefficiency, rigidity,
bureaucracy, corruption and deteriorated services to the customer. So, the
confidence of the public would be lost from the nationalized banks.
4. It was also incorrect to say that private sector banks were responsible to create
monopolies and concentration of economic power in a few hands. In fact, it was
the operation of Government policies of industrial, import and other licensing
and of plan priorities that had encouraged some big concerns to come into
existence and flourish. Banks financed their resources to these concerns only
because they had been playing a vital and commanding role in the economic set
up, planned and assigned by the Government. If these firms did not get bank
credit, they could not run their business which caused wastage of community's
resources.
5. It was true that credit given by joint-stock banks to agriculturists, co-operative
institutions and small industries constituted a small proportion of the total bank
credit. But this was due to the difficulty of assessing the creditworthiness of the
borrowers and the economic viability of their activities. As the banks were
trustees of the funds deposited by public, they could not give loans to persons
whose creditworthiness was doubtful.
6. Nationalized banks would not be able to change the profit motive into service
motive in their operations. It is not consistent with any banking principles or
practice to lend money for schemes which are not expected to make a profit.
Moreover, planning ,implies an optimum use of resources. Unless nationalized
banks adopt a commercial approach in their operations, it will be impossible to
utilize their resources in the best possible manner. Moreover, the nationalized
banks will be accountable to the nation, though Parliament and even the ministry
of Finance will not approve the performance of the nationalized banks if they do
not follow the banking and accounting principles strictly.
7. It was expected that after nationalization public sector banks would receive better
co-operation from their employees. But the experience of the Reserve Bank of
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India, the State Bank of India, the Life Insurance Corporation and other
undertakings in the public sector, in this regard disappointed us. There was no
cordial relationship between management and employees. Even, it could not be
said that performance of the State Bank of India was better than that of private
sector banks in regard to the efficiency of the services rendered to the customers.
8. The argument, that public sector banks would set up new branches in semi-urban
and rural areas rapidly than the private banks, had no validity, because, a bank
whether a private bank or a nationalized bank had to run their business by
following banking principles and satisfy itself that the new branches were
economically viable.
9. It was true that the gross emoluments of the top executives of the larger private
sector banks were appreciably higher than those of their counterparts in
undertakings in the public sector. But there was a little difference between their
net emoluments because most of the difference between the gross emoluments of
the two sets of executives was due to higher rates of income taxes which
increased very steeply in the case of higher incomes. Thus, the difference in the
gross emoluments was more apparent than real. However, for this fact, top
executives of the private sector banks were eager to put their best efforts to make
their respective banks more effective and remained alert in rendering newer,
better and quicker service to their customers.
10. Banks were not at all responsible for the tax evasion or for the creation of black
money. It was produced by an irrational tax-structure, high deficit financing and
the corrupt public administration of the country. Therefore, it could not be said
that bank nationalization could check tax evasion or curb the creation of black
money.
4.3 Achievement after nationalization By and large, nationalized banks have achieved some phenomenal success in regard
to attaining the objectives of nationalization. A dramatic change has occurred in the
profile of Indian banking especially in the deployment of commercial bank credit which
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has made banks as effective catalytic agents of socioeconomic change in the country. The
following are the major achievements of public sector commercial banks:
A. Branch Expansion: There has been a rapid progress in branch expansion of public
sector banks especially in the rural and semi-urban areas, which was one of the
primary objectives of nationalization. Table 1 shows the branch expansion of Indian
scheduled commercial banks during the period of 1969 to 1994.
Table-1: Branch Expansion of Indian Scheduled Commercial Banks
Bank offices at the end of
Bank Group July 1969 June 1989 June 1994
1. SBI & its associate banks 2466 11559 12626
2. Nationalized Banks 4168@ 27574 30405
3. Public Sector Banks (1+2) 6634 39133 43031
4. Private Sector Banks 1688 4429 3987
5. Foreign Banks in India - - 146
6.RRBs - 14136 14530
7. Total (3+4+5+6) 8322 57698 61694
Note:@- Branches of 14 nationalized banks only [Source: RBI Bulletin, Report on Trend & Progress of Banking in India, 1989-90, 1994-95 and 2004-05 respectively]
It is evident from the above table that branch expansion of Indian scheduled
commercial banks increased by 53,372 in number and the overall rate of branch
expansion of was 641 % during this period, in which nationalized banks increased their
braches by 629 %.Branches of SBI and its associate banks increased by 412 % and those
of Indian private sector banks by 136 % during this period. So, we notice that the
performance of nationalized banks was better as compared to other banks. It is noted that
the Indian private sector banks too have tired to maintain the pace of branch expansion by
keeping consistency with the public sector banks. The RBI gave permission to each bank
for opening one branch in metropolitan town after the establishment of four branches in
rural areas. Consequently, a rapid progress of branch expansion of Indian scheduled
commercial banks in rural areas accounts for praise during the post-nationalization
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period. Table 2 reveals spread of scheduled commercial bank branches in India as per
Bank Group or Population Group wise during the period of 1969-1994.
Table-2: Distribution of Scheduled Commercial Bank Branches in India- Bank G /P I . G roup opu ation roup wise
Centre SBI NTN PSBs PrSBs Fgn RRBs ASCBs (1) (2) (3=1+2) (4) (5) (6) (7=3+4+5+6)
Rural: July 1969 820 703 1523 337 - - 1860
(33 .3) (16.9) (23.0) (20.0) (22.4) June 1989 5331 13177 18508 1423 - 13083 33014
(46.1) (47.8) (47.3) (32.1) (92.6) (57.2) June 1994 5989 14709 20698 1271 - 13415 35384
(47.4) (48.4) ( 48.1) (31.8) (92.3) (57.3)
Semi-Urban: July 1969 1172 1465 2637 708 - 3345
(47.5) (35.1) (39.7) (41.9) (40.2) June 1989 3336 5510 8846 1411 - 908 11165
(28.9) (20.0) (22.6) (31.9) (6.4) (19.4) June 1994 3437 5971 9408 1330 2 960 11700
(27.2) (19.6) (21.9) (33 .4) (1.4) (6.6) (18.9)
Urban: July 1969 249 928 1177 279 - - 1456
( 10.1) (22.3) (17.7) (16.5) (17.5) June 1989 1701 4826 6527 856 - 141 7524
(14.7) (17.5) (16.7) (19.3) (1.0) (13.0) June 1994 1919 5388 7307 816 11 151 8285
(I 5.2) (I 7.7) (17.0) (20.5) (7.5) (1.1) (13.5) Metrogolitan: July 1969 225 1072 1297 364 - - 1661
(9.1) (25.7) (I 9.6) (21.6) (20.0) June 1989 1191 4061 5252 739 - 4 5995
(1 0.3) (14.7) (13.4) (I 6.7) (Negligible) ( 10.4) June 1994 1281 4337 5618 570 133 4 6325
(I 0.2) (14.3) (13.0) (I 4.3) (91.1) (Negligible) (10.3)
Total: July 1969 2466 4168 6634 1688 - - 8322
(100) (100) (100) (100) (100) June 1989 11559 27574 39133 4429 - 14136 57698
(100) (100) (100) (100) (100) (100) June 1994 12626 30405 43031 3987 146 14530 61694
(100) (1 00) (100) (100) (100) (100) (100)
Figures in brackets indicate percentage to total in each group
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[Source: RBI Bulletin, Report on Trend & Progress of Banking in India, 1989-90, 1994-95, 2004-05] SBI = SBI & its Associate Banks
NTN =Nationalized Banks
PSBs = Public Sector Banks
PrSBs = Private Sector Banks
Fgn =Foreign Banks in India
RRBs = Regional Rural Banks
AS CBs = All Scheduled Commercial Banks
All scheduled commercial banks opened 57.3 % branches in rural areas during
1969-1994 while in other areas rate of opening new branches by them decreased during
this period. SBI & its associate banks opened total branches 47.4% in rural areas in June
1994, as compared to 33.3 % in 1969. Nationalized banks approximately tripled their
branches in rural areas from 16.9% to 48.4% during 1969-1994. The proportion of rural
branches in the total number of public sector banks branches recorded a significant rise
from 23 % to 48.1 %. Similarly, the proportion of rural branches of private sector banks
increased from 20 % to nearly 32 % during 1969-1994.
B. Deposit Mobilization and Credit Expansion: There has been a spectacular rise in
the rate of deposit mobilization and in the bank credit during the post-nationalization
period. Table 3 depicts the growth of bank deposits and credits of Indian scheduled
commercial banks during the post-nationalization era ( 1969-1994 ).
Table-3: Deposits and Credits of all Indian Scheduled Commercial Banks (Figures in crore of rupees)
Year Bank Deposits Bank Credits June 1969 4640 3599
March 1989 140150 84719
March 1994 315132 164418
[Source: RBI Bulletin, Report on Trend & Progress of Banking in India, 1970-71, 1989-
90 and 1994-95 respectively]
It is shown from the above table that aggregate deposits increased from Rs.4640
crore in 1969 to Rs. 140150 crore in 1989 and thereafter also increased in 1994 by Rs.
174982 crore. Planned economic development, deficit financing and increase in currency
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issued helped to increase the quantum of bank deposits during the post-nationalization
period. Scheduled Commercial Banks in India promoted banking habit among the people
through sustained publicity, extensive branch banking and relatively prompt service to
the customers.
Massive deposit mobilization as well as inflationary expansion of money supply
caused phenomenal growth in bank credit. Total bank credit of all Indian scheduled
commercial banks recorded a jump from Rs. 3599 crore toRs. 84719 crore during the
period June 1969 to March 1989 and thereafter, it became approximately doubled from
Rs. 84 719 crore in March 1989 to Rs. 164418 crore in March 1994.
C. Advances to Priority sectors: Since, one of the important objectives of bank
nationalization was to channelise the flow of credit to the priority sectors, public
sector banks made marked progress in this direction i.e., after nationalization, there
was a remarkable change in the credit policy of the banks. Credit to the priority
sectors especially agriculture, small-scale industry and small transport operators were
given more importance by the policy makers. In addition, other priority sectors such
as retail trade, professional and self-employed persons, education, housing loans for
weaker sections and consumption loans were also included
In 1980, RB I issued certain directives to the banks regarding priority sector
lending and expected their cooperation and compliance:
(a) Priority sector advances should constitute 40% of aggregate bank credit;
(b) Out of priority sector advances, at least 40 % should be provided to
agriculture;
(c) Direct advances to the weaker sections in agriculture and allied activities
in rural areas should form at least 50 % of the total direct lending to
agriculture;
(d) Bank credit to rural artisans, village craftsmen and cottage industries
should be at least 12.5% of the total advances to small scale industries;
(e) About 12% of bank credit should go to exporters.
Advances provided by public sector banks to the priority sectors have been shown
in Table 4.
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Table-4: Advances to the Priority Sectors by Public Sector Banks (as on the last reporting Friday)
Number of Accounts Amount Outstanding Sector (in lakh) (Rs. crore)
June June March June June March 1969 1989 1994 1969 1989 1994
I. Agriculture 1.7 197.48 217.9 162 14369 21204 (5.4) (18.4) (15.0)
(i) Direct 1.6 190.26 212.9 40 12920 19255 (1.3) (16.5) (13.7)
(ii) Indirect 0.1 7.22 5.0 122 1449 1949 (4.1) (1.9) (1.4)
II. Small-scale industries 0.5 27.07 30.2 257 13248 21561 (8.5) (16.9) (15.3)
III. Other priority sector 0.4 106.46 116.9 22 7257 10432 advances (including small (0.7) (9.3) (7.4) transport operators, self-employed persons, rural artisans etc.)
IV. Total priority sector 2.6 331.01 365.0 441 34874 53197 advances (I+II+III) (14.6) (44.6) (37.8)
v. Net Bank Credit Nil Nil Nil 3016 78178 140916
Data are provisional. Figures in brackets represent percentages to net bank credit [Source: RBI Bulletin, Report on Trend & Progress of banking in India, 1989-90, 1994-95 and 2004-05 respectively]
It is evident from this table that the share of the priority sectors in net bank credit of
the public sector banks increased from nearly 15 % in June 1969 to 37.8 % in March
1994. Between June 1969 and March 1994, the number of borrowal accounts with the
public sector banks under priority sectors rose from 2.60 lakh to 365.0 lakh which was
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about 140 times. Advances by public sector banks to the priority sectors increased by
about 12000% from Rs. 441 crore in June 1969 toRs. 53197 crore in March 1994. At the
initial stage of post-nationalization period, the rate of progress was quite rapid but later
the progress was more modest. "The relatively slow progress of advances to the priority
sectors was due to the fact that the bank officials from top to bottom were not imbued
with the new objectives of banking. At the same time, banks were also worried at the
poor and unsatisfactory recovery performance of the agriculture and small sectors" [Dutt
& Sundaram, 2004 p.835].
D. Social Banking: Special Employment and Poverty alleviation programmes: As
social banking, the public sector banks have played a significant role in financing
their funds in various social sector schemes sponsored by the Government of India
for employment generation and poverty alleviation. These schemes are discussed
below:
(a) Differential Rate of Interest (DRI): The social objective of protecting the
poor from the rich can be accomplished if the banks follow a policy of
interest rate discrimination called 'Differential Rate of Interest (DRI)'
Scheme. The Scheme of DRI is justified on economic ground in so far as the
elasticity of demand for credit is higher in the case of poor than in the case
of rich (Dasgupta, 1972, p.1281 ). It has also been argued that the DRI
Scheme is justified on the ground that the public financial institutions are to
protect the weaker sections from monopolistic exploitation by the private
money lenders (Rao, 1972, p.l893). On the basis of these justifications, the
Government of India gave permission on March 25, 1972 to public sector
banks for implementation of DRI Schemes on advances. This scheme was
introduced in April 1972, covering 162 districts. Later the scheme was
extended to the whole country. Under this scheme loans are given at 4 %
rate of interest to such borrowers who (a) have really no tangible security of
any worth to offer on their own (b) cannot produce a guarantee of a well-to
do party and (c) can be helped to rise through the scheme which becomes
economically viable within 3 years.
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Under this scheme, loans up to Rs. 6,500 are given to a rural household and
urban household having annual income up to Rs. 6,400 and Rs. 7,200
respectively. Public sector banks issued advances under DRI Scheme Rs.
679.59 crore in 47.67 lakh borrowal accounts at the end of March 1989 as
compared to Rs.88 lakh in 36000 borrowal accounts in 1972. At the end of
March 1989, the advances of these banks under this scheme formed 0.9% of
total advances, while total advances under this scheme to scheduled castes
and scheduled tribes at the end of March 1988 formed 49.3 % of total DRI
advances as against the target of 40 %. The number of accounts and amount
outstanding declined later due to the carefulness of banks to select the really
deserving ones.
(b) Self-Employment Scheme for Educated Unemployed Youth (SEEUY):
This scheme has been effective since 1983-84. The public sector banks
sanctioned an aggregate credit ofRs. 207.93 crore to 1.01lakh beneficiaries
during 1987-88 and Rs. 394.78 crore to 1.88 lakh beneficiaries during 1988-
89.
(c) Self-Employment Programme for Urban Poor (SEPUP): The
Government of India introduced this scheme in September 1986 to provide
self-employment opportunities to the urban poor. The public sector banks
sanctioned an aggregate credit of Rs. 136.55 crore and Rs 130.69 crore to
3.82 lakh and 3.41 lakh beneficiaries during 1987-88 and 1988-89
respectively.
(d) Integrated Rural Development Programme (IRDP): The Government of
India introduced this scheme to rectify imbalances in rural economy and
also for all-round progress and prosperity of the rural masses. Under this
scheme, banks assisted nearly 3 million beneficiaries and disbursed a total
amount of Rs. 1,190 crore as loan and Rs. 800 crore as subsidy during 1990-
91. Out of 3 million beneficiaries, over 1.5 million belonged to SCs I STs
and 0.9 million were women.
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The above discussion clearly shows the achievements of public sector banks after
nationalization. However, there are certain limitations associated with the working of the
public sector banks. They are:
(i) The quality of service rendered by them has deteriorated due to
staff indiscipline and absence of the system of accountability.
(ii) Due to lack of adequate professionally trained staff in certain areas
like agricultural financing, public sector banks except State Bank
of India did not carry their operations in good condition.
(iii) Interference of the high officials of the department of the
Government of India in the management of banks leads to
decision- making on the basis of political expediency rather than
by following strict banking norms.
(iv) The increasing advances to unemployed for self-employment and
loans to weaker sections have created the problem of bad debts,
doubtful debts and over-dues.
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