Summer of 69’ : Bank Nationalization

Banking in India is not a new term, we can find its roots in the Ancient past of India where common banking work can be seen such as money lending and some instruments such as bills of exchange used by the kings and Merchants for trade and commerce activities. The Modern banking in India is little over a century old. Early 19th century most of the banks were incorporated as Joint stock entities, either promoted by large Corporates or the royal families. Despite the provisions, control and regulations of the Reserve Bank of India, banks in India except the State Bank of India (SBI), remain owned and operated by private persons. By Independence 90% of the banks were privately owned.

Banking sector was doing well after the independence. Its spread was mainly concentrated in the urban areas. Its services were available to handful of rich and upper middle class people only. The progress regarding the social objectives was not adequate. Banks used to serve their masters for profits. It was felt that banking had to spread for rapid economic growth and social justice to all the people of the society giving access to rich and poor and to extend the reach of the Government programmes across the length and breadth of the country.

There was no alternative to nationalization of at least the major segment of banking system. Indira Gandhi, the then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled Stray thoughts on Bank Nationalization.

Thereafter, the Government of India issued the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969 and nationalized the 14 largest commercial banks with effect from the midnight of 19 July 1969. These banks contained 85 percent of bank deposits in the country. Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received presidential approval on 9 August 1969.

The following banks were nationalized in 1969:

• Allahabad Bank
• Bank of Baroda
• Bank of India
• Bank of Maharashtra
• Central Bank of India
• Canara Bank
• Dena Bank
• Indian Bank
• Indian Overseas Bank
• Punjab National Bank
• Syndicate Bank
• UCO Bank
• Union Bank
• United Bank of India

We have also witnessed a 2^nd round of nationalization of 6 more banks followed in 1980. The name of those banks are Punjab and Sind bank, vijaya Bank, Oriental Bank of India, Corporate bank, Andhra Bank, New bank of India (merge with PNB in 1993).

It was believed that nationalization would mark a new phase in the Indian economy and would help Government to smoothly and efficiently run its objectives. Thanks to nationalization of banks, Government is succeeded partially in meetings its objectives. Still many people in India don’t have banking access. But to compete with Private sector banks Public sector banks (PSBs) are bringing state of the art technologies to widen its reach and provide more secure and safe banking services to the people. Banking sector is the backbone of the Indian economy and to strengthen an economy banking sector needs to be strengthen. The Modi Government is infusing capital to strengthen the public banking system with reduction on ownership and focusing more on Governance. Hopefully we’ll see some Ache din (Good days) in the banking sector in the future.

Thank You.

Consolidation of Banks: Old wine in new glass.

PSU Bank Consolidation : The Newly appoint government is looking for the PSU Bank Consolidation, which is considered to be good for the indian economy.

Let’s discuss the roots of consolidation of PSU banks.

The idea came in 1991 when we had LPG policy (Liberlisation, Privatisation and Globalisation) implemented all over India. We became open economy from the closed, at that time then finance Minister Dr. Manmohan Singh has appointed a committee under former Reserve Bank of India Governor M Narasimham to draw out a roadmap for financial sector reforms in India. When this committee submitted its report in 1991, it recommended a three-tier banking structure for government owned lenders. (PSU banks) It emphasised on reduction of numbers of public sector banks. As we can see internationally there are around 3 to 4 major banks so following the same route this committee suggested in its notes that there should be 3 or 4 big banks in the country and rest of the small banks to be merged with the big banks and these big banks can be created by consolidating banks.

Post LPG we have seen several big mergers in indian banking industry such as.

1. Punjab National Bank (PNB) and New Bank of India (NBI) (1993-1994)

• Bank of Baroda (BoB) and Benares State Bank Ltd (2002)

• Oriental Bank of Commerce (OBC) and Global Trust Bank (2004)

• State Bank of India and State Bank of Saurashtra (2008)

• SBI merger with associate banks and Bharatiya Mahila Bank (2017)

• And the latest Bank of Baroda merger with Vijaya Bank and Dena bank (2019)

On end note having more and more does not make the financial system effective and efficient. So the Government should focus on the quality of the banks rather than quantity. Regular funds should be injected in these banks and it should be monitored closely so that prompt action can be taken in due course.

Indian banking sector is the backbone of Indian economy without it functioning properly we can’t imagine our GDP to be growing at a rapid rate. So taking care of the banking system is the need of the hour and hopefully this government can manage this.

Thank you.