Bank Nationalisation : Analysis – UPSC GS3

14 banks with deposits of at least Rs 50 crore each were nationalised on the midnight of July 19, 1969, by Indira Gandhi.

A second round of nationalisation of six more commercial banks with deposits of more than Rs 200 crore was done in 1980.

Mis-governance: Post-World War II, many banks collapsed as they had been financing speculative activities.

Non inclusive: over 300 banks during that time were under the regulation of RBI as many of them were reluctant to support industry and agriculture and only gave trade finance.

Bank Failure: In 1960, Palai Central Bank and Lakshmi Commercial Bank collapsed, the RBI launched a massive consolidation drive, bringing the number of banks from 328 in 1960 to 94 by 1965.

Nationalisation of banks has served its purpose by taking banking to the hinterland and bringing a large part of the population into its fold.

Since then, the banking industry has grown.

In June 1969, there were 73 commercial banks; now there are 94, including small finance banks and payments banks but excluding regional rural banks and local area banks.

The number of bank branches has grown from 8,262 to 158,373.

One branch now covers roughly 9,500 people against 64,000 in 1969.

In June 1969, the deposit portfolio of banks was Rs 4,646 crore, by June 2021, the deposit portfolio has grown close to Rs 153 trillion.

Due to rising NPA’s and faced with the issue of Political intervention, PSB’s are in a bad state of financial health.

Hence, the current government wants to Privatise few of the PSB’s to improve the banking sector in India.

In February 2021 Union Budget, for the first time, spoke about privatising two such banks. Even before that, the government had committed to privatise IDBI Bank Ltd.

In the run-up to the privatisation, the public sector banking industry had gone through a major phase of consolidation. The number of PSB’s has come down from 27 to 12 in three years, between 2017 and 2020.