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Nationalization of Banks

The Indian banking system made a considerable progress in 1950’s and 1960’s, it established close links between commercial banks and industrial houses, resulting in cornering of bank credit to other sectors such as; agriculture and small scale industries. Functionally the banks catered only to the needs of organized industrial and trading sectors and neglected the primary sector such as; agriculture, forestry and fishing, which formed more than 50% of GDP and had to depend largely on own financing and on sources outside the commercial banks.
It is against this backdrop that the process of financial development was given impetus with the adoption of the policy of social control over banks in 1967. The GOI, in the year 1969, nationalized 14 banks having an aggregate deposit of Rs.50 crores or more and subsequently in the year 1980 the government took over 6 more scheduled commercial banks with deposits of Rs.200 crore and above. The sole objective was “to serve better the needs of development of the economy, in conformity with National Priorities and objectives”.
The Nationalized Banks Group originally comprised 20 banks of which 14 were nationalized in 1969 and 6 in 1980 and one of them – the New Bank of India, was later merged with Punjab National Bank. Thus 27 banks constitute public sector in Indian Commercial Banking. With these two rounds of nationalization and State Bank of India, being already in the ownership of the RBI to the extent of its equity, the organized banking sector has come in the government control.
The nationalization of banks was done with a view to serving better the developmental needs of all sectors of the economy in consonance with the national policies and priorities. The broad aim got translated into spreading of banking areas, increased mobilization of savings, removal of regional disparities and channelizing credit into the weaker sections of the society.

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