2. Social Control and
Nationalization of Banks
Vasanth Kumar.C
Jr,M.Sc(Agri )
Dept of Agril. Economics
UAS GKVK Bangalore
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3. S
O
C
I
A
L
Banking Scenario Prior to
Nationalization
The private sector banks being predominantly urban
oriented and controlled by few large industrialists
C
O
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R
O
L
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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4. S
O
C
I
A
L
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
C
O
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L
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
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5. S
O
C
I
A
L
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
C
O
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R
O
L
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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6. S
O
C
I
A
L
C
O
N
T
R
O
L
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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7. S
O
C
I
A
L
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.
C
O
N
T
R
O
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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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8. S
O
C
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A
L
C
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T
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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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9. S
O
C
I
A
L
C
O
N
T
R
O
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The Remedial move
Demand 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 1 st
February,1969 through the enforcement of legislative
measures.
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10. 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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11. N
A
T
I
O
N
A
L
I
Z
A
T
I
O
N
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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12. N
A
T
I
O
N
A
L
I
Z
A
T
I
O
N
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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13. N
A
T
I
O
N
A
L
I
Z
A
T
I
O
N
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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14. N
A
T
I
O
N
A
L
I
Z
A
T
I
O
N
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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14
15. N
A
T
I
O
N
A
L
I
Z
A
T
I
O
N
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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20. N
A
T
I
O
N
A
L
I
Z
A
T
I
O
N
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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21. N
A
T
I
O
N
A
L
I
Z
A
T
I
O
N
Second spell of Nationalization
Encouraged 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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22. N
A
T
I
O
N
A
L
I
Z
A
T
I
O
N
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. 22
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24. N
A
T
I
O
N
A
L
I
Z
A
T
I
O
N
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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25. N
A
T
I
O
N
A
L
I
Z
A
T
I
O
N
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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27. N
A
T
I
O
N
A
L
I
Z
A
T
I
O
N
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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28. N
A
T
I
O
N
A
L
I
Z
A
T
I
O
N
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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30. N
A
T
I
O
N
A
L
I
Z
A
T
I
O
N
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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