50 years of Nationalization of banks 1969 in India 2020

Nationalization of banks :14 banks were nationalized in the year 1969 in India. On 19 July 2019, 50 years of this nationalization have been completed. In this context, discussion on the Indian banking system and nationalization of banks has become common. Different experts and economists have different opinions about nationalization and the current banking system. Some believe that the rationale of nationalization has been opposed to the basic spirit of banks, while others consider it necessary for financial inclusion. At present, the banking system is also facing various challenges. A holistic study is needed to understand the above ideas and to know the idea of ​​nationalization and its consequences. This topic can be understood as follows.

History Nationalization of banks

Nationalization of banks
Nationalization of banks

The history of banking can be traced back to the development of civilizations as well. In India and the world, banking systems were administered through categories and corporations. There are many such examples in the past which suggest that many classes and communities used to get money for trade and other needs through these mediums. Not only this, these institutions also used to deposit people’s money on which interest was payable. After the arrival of Europeans, especially the British in India, there is some boom in the banking sector. Although these institutions were providing services solely for British interests and British companies, the same situation could be seen later in Indian banking institutions. Even after independence, there was no change in the mindset and methodology of banks. Prior to the nationalization of banks, 80 percent of India’s capital was with private banks, as well as these institutions had no contribution in improving the socio-economic condition of India. In addition, there were other problems.

Nationalization of Banks – Factors

The banking sector of India was mainly in private hands after independence. While these banks were not interested in cooperation in the socio-economic development of India, on the other hand, their administration and regulation were also in poor condition. Between 1947-1955, more than 300 banks, big and small, were closed, and the deposits of people deposited in these banks had also sunk. These banks were out of reach of rural areas of India and through these banks some industries were also involved in black marketing and hoarding.


Apart from the above factors, the government was making various efforts to speed up the economy at the time, the government wanted the support of banks to promote inclusiveness in India and to connect the people especially the rural population to the banking system, but the government on banks This was not possible without the administrative control of. Hence, the banks were nationalized by the government in the year 1969 and later in the year 1980.

Nationalization and merger of banks

Before the 1950s in the world, the banking sector was mainly operated by the private sector. The countries involved in the Second World War suffered severe economic losses, which caused a severe shock to the economy of these countries. To overcome this, some banks were nationalized by various countries, especially European countries, so that these countries could get financial assistance.


After independence, India’s economic condition was very bad and poverty, rural-urban gap was also very high. Despite various efforts of the government, the sector was not improving much. The Government of India also faced a major problem of capital as resources were limited. Keeping in view the above facts, in the year 1969, the government nationalized 14 banks (whose capital was more than Rs 50 crore). Later in 1980 also 6 banks were nationalized. The government has merged some banks from time to time for nationalization of banks as well as for the same purpose. To improve the condition of banks, the recommendation of merger of banks has already been done by Narasimham Committee and P.J. Nayak has been done by the committee. According to the Indian Banking Association, about 50 banks have been merged since 1986. The merger of New Bank of India with Punjab National Bank is considered to be the first major merger of the past. Sometime later in the year 2017, Bharatiya Mahila Bank and five other banks were merged with State Bank of India. After this merger, SBI joined the list of 50 largest banks in the world. Apart from this, Vijaya Bank and Dena Bank were also merged with Bank of Baroda in the year 2019.

Nationalization results

After nationalization, the deteriorating condition of banks improved rapidly. Prior to 1969, there were only about 8,000 branches of banks which increased to 60 thousand in the year 1994 and near to 1 lakh 15 thousand in the year 2014. Earlier all banks were located in urban areas only, but after nationalization, by the year 2014, about 43 thousand banks have been established in rural areas. Earlier banks were under private ownership, due to which they were interested in private profit rather than social welfare, but in a country like India, banking system is necessary for various socio-economic sectors. After nationalization, banks became the axis of inclusive development and various welfare schemes in India.


Currently programs like Jan Dhan Yojana (PMJDY) under which around 31 crore bank accounts were opened by the year 2018 could only be possible after nationalization of banks. Such schemes not only ensured access of banks to the last section of the society but also served as the basis for various schemes. The bulk of the budget in India is spent as subsidy. There was a problem of corruption and leakage in the subsidy given through various channels, due to which a large amount could not reach the target group. After the inclusion of banks, it was possible to provide such subsidies through direct benefit transfer. At present, it has been possible to give the amount of programs such as gas subsidy, MNREGA, Kisan Credit Card Scheme, Housing Scheme for all, directly to the beneficiary’s account.

Nationalized banks and private sector banks

After liberalization, the private sector was also allowed to enter the banking sector. In 1994, the first such bank was ICICI Bank, which was given a license for the bank after liberalization. Currently many private sector banks are functioning. The inclusion of private sector in banking accelerated this sector and banking services for the people became universal. These banks introduced new products in the market and gradually started competing with the public sector banks. These banks are based solely on banking values ​​and are only responsible to their customers. Whereas public sector banks (PSBs) ie nationalized banks are having to discharge socio-economic obligation towards the public along with their survival. This is making it difficult for PSBs to compete with private banks. Various nationalized banks are facing difficulties due to excess of non-performing assets (NPAs) and poor functioning. Apart from this, there is another problem regarding the control over these banks, guidelines are given to the banks by both the government and RBI, this is causing confusion.

If we take a look at the basic indicators then it indicates that the PSB situation has declined. At the end of March 2019, the gross NPA ratio was 11.2 percent and PSB banks’ return on assets was 0.8 percent for the financial year 2018, while the rate of return on equity was negative. Apart from this, the rate of opening new bank branches has also fallen by 25 percent in the last year.

Public Bank: Still Strong

Despite the above situation, public sector banks still remain in a strong position. The total bank credit and deposits of the market are still present in 63.2 percent and 66.9 percent public sector banks respectively. However, NPA has emerged as a major problem for banks. But improvement is also being seen in it, along with the government, RBI and concerned banks are making efforts to recover their trapped debt.

Some experts have been presenting the idea of ​​privatization of banks in view of the deteriorating situation. In a country like India where serious economic inequalities exist and the banking system has an important role to improve the condition of the people, the idea of ​​privatization in any way cannot be justified. In place of privatization, the government will have to come forward to improve the condition of banks, as well as efforts should be made to improve the governance of banks so that their functioning can be changed. The RBI will have to keep a close watch on the balance sheet of PSB banks so that it can be rectified before the situation worsens. In the era of digitization, the private sector has rapidly changed its methodology and accepted new technologies. Public sector banks will also have to enthusiastically adopt new technology to compete with the private sector, while banks can support government schemes rather than becoming a burden on the government. If it is not possible to fix the situation of some banks, then instead of privatization of such banks their merger can also be considered, some banks have been merged by the government some time ago. The merger of banks will not only improve the functioning of banks, but will also increase their size so that they will be able to join the big banks of the world and give a strong foundation to the Indian economy.

The conclusion

It has been 50 years since the nationalization of banks. During this period, India has improved its position in many areas. For this, among other things, banks have also played an important role. Prior to liberalization, India had a shortage of capital which was overcome to some extent by banks, as well as banks have emerged as the largest means of economic transfer between the government and the public. Apart from this, these banks have also faced some challenges. These challenges have arisen not only at the level of competition but also from the structure of banks. Various efforts have been made by the government and banks to deal with them, which are still going on.

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