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Social Control and Nationalization of Banks
Vasanth Kumar.C
Jr,M.Sc(Agri )
Dept of Agril. Economics
UAS GKVK Bangalore
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Banking Scenario Prior to Nationalization
The private sector banks being predominantly urban
oriented and controlled by few large industrialists
were not properly equipped to help the achievement
of the basic socio-economic objectives.
The credit needs of agriculture ,small scale industries
and weaker sections were totally neglected.
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The bulk of the deposits mobilized
was advanced to the industry sector
and the priority sector agriculture
received barely 1%.
In absence of financial institutional
protection, the agricultural credit
scene was dominated by private
moneylenders charging exorbitant
rate of interest.
All these compelled the imposition
of social control over banks in
1968.
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The social control scheme
Reconstitution of Board of Directors –i.e.51% of them should
have specialized knowledge on accountancy,agriculture,rural
economy ,banking, cooperation, economics, finance,law,small
scale industries and other matters useful to the banking
company.
Appointment of a whole time chairman.
Imposition of restriction on loans to be granted to the director’s
concern.
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The scheme also provided for take over of banks by the Govt.
under certain circumstances.
National credit council was setup to perform certain specific
functions relating to credit to priority sector.
The major objectives,
wider spread of bank credit,
directing large volume of credit flow to the priority sector and
reducing the authority of the members of the managing
committee ,since they acted as the representatives of the
industrialists.
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Situation after social control scheme
Created the tempo of branch expansion initially.
No significant achievement was made in channelizing adequate
credit to the priority and weaker sections.
In many banks, the policies were controlled by those ,who had
controlled these banks earlier.
The directions issued by the Government were ignored by many
banks.
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The consequent impact
The Government believed that social control was not sufficient to make the commercial banking system meaningful for socio economic development.
Bank nationalization was considered as the alternative solution.
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The Remedial moveDemand for nationalization of commercial banks was raised quite frequently in the past.
12 point programme was placed in the Bhubaneswar session of the congress party in 1964 to mitigate the entire range of economic and Social evils.
The Govt. did not accept that due to administrative difficulties and other consequential effects in the economy.However,social control was introduced on 1st February,1969 through the enforcement of legislative measures.
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Brief History of Indian Banking
Before the enforcement of Banking Regulation Act,1949 there
was little control and regulation on banking business.
Results:Mushrooming Growth of public banking companies.
Gradual liquidation of the act results-closure and liquidation,
Amalgamation of the banks into another.
Failure of the Palai central Bank in 1960-A turning point in
the Indian Banking Scenario.
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Nationalization of Banks
Promulgation of the banking companies (Acquisition and Transfer
of undertaking) ordinance 1969. on July 19,1969 under which 14
commercial banks with deposits over Rs.50 crore each were
Nationalized.
When the government of any country takes the ownership of any
industry or enterprise in its own hand, then this process is known
as nationalization.
The term social control does not mean nationalization of the banks.
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The difference between social control and nationalization is that in nationalization both the ownership and control are taken up by the government, while in social control ownership does not rest in the government.
Social control implies restricted freedom to the bankers, it will give more powers to the central government and credit will be regulated for the social welfare.
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The main objectives of Nationalization
As set out by the then prime minister, smt.Indira Gandhi, were
Removal of control on banking business by a few industrialists:
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.
Elimination of the use of bank credit for speculative and
unproductive purposes.
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Expansion of credit to priority areas which were grossly
neglected like agriculture and small scale industries.
Giving a professional bent to the bank management .
Encouragement of new classes of entrepreneurs.
Provision of adequate training as well as reasonable terms of
service to bank staff.
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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.
Reducing Regional Imbalance : In 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.
In order to reduce this regional imbalance nationalization
was justified
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14 Nationalized banks (1st spell)
1.central bank of India
2.Bank of India
3.Punjab National Bank
4.Bank of Baroda
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5. United commercial Bank
6.Canara Bank
7. United Bank of India
8.Dena Bank
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9.Union Bank
10.Allahabad Bank
11.Syndicate Bank
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12.Indian Bank
13.Bank of Maharashtra
14.Indian overseas bank
The 14 Banks together had 4,134 Baranches with deposits of
Rs.2,626 crore and advances of Rs.1,813 crore.
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After 1st spell of Nationalization
Between June 1969 and June 1975, 8,755 offices were opened
by public sector banks, of which 4,337 offices were in urban
areas.
The number of public sector bank offices went up from 6,596
in June 1969 to 15,077 in June 1975.
The average population served per bank branch declined
markedly from 65,000 in June, 1969 to 32,000 by June, 1975.
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Second spell of NationalizationEncouraged by the success of first spell of
nationalization of banks, six more banks in the private sector, having deposits more than Rs.200 crore were nationalized on 15th April 1980.
The six banks were,
1.Punjab & Sind Bank
2.Andhra Bank
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3.New Bank of India
4.Vijaya Bank
5.Oriental Bank of Commerce
6.Corporation Bank
In 1993,The New Bank Of India was merged with Punjab
national Bank consequent to which Nationalized Banks stands as on Today 19.
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Arguments in favour of nationalization of banks in India
Prevention of trade cycles: a/c to Keynes,
banks plays a very important role at the time of boom (or) depression.
The boom and depression follow each other at regular intervals.
fluctuations harm to the economy of the country.
it is essential to exercise control on these business fluctuations in the interest of the healthy development of the economy the government can keep the effective control on the volume of credit only if the banks are nationalized.
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Improvement in efficiency.
Socialistic pattern of society.
Effective economic planning.
Security to depositors.
Removal of inter bank competition.
Utilization of bank credit in national interests.
Encouragements to savings.
Utilization of banks profit in national interests
Development of specialized banks.
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Arguments against nationalisation of banks
Lack of able, efficient and experienced employees.
Adverse effects on the development of private sector.
Lack of financial secrecy.
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Achievements of nationalized banks
The main achievements of the nationalized banks Expansion of bank branches Financial accommodation to the neglected
sections Financial accommodation to the unemployed
youth. Loans to sick industrial undertakings District survey for banking development
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Failures of nationalized banks
Deterioration in the services of the banks.
Failure to mobilize adequate deposits
Failure to provide competent and efficient
bank staff
Neglect the priority sectors
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Evolution Stages
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Banks in agricultural sector
Nationalization of banks was a major step for channelizing credit to various sectors of economy of which agriculture is a major sector.
A dynamic and growing agricultural sector needs adequate finance through banks to accelerate the overall growth.
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Flow of credit to Agriculture
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The target for agricultural credit in 2013-14 is Rs7,00,000 crore.
References
http://indiabudget.nihttp
http://finance.indiamart.com
http://www.rbi.org.in
http://www.epw.in
http://www.hindu.com
https://www.youtube.com
http://www.preservearticles.com
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THANK YOU
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