A “IT in BFSI” Project on

“50 YEARS OF NATIONALISATION”

SUBMITTED BY,

ISHITA DONGRE
PRN – 19030241119
ITBM – DIV ‘C’

FACULTY: Prof. SUDHIR DAPHTARDAR

SUBMISSION DATE: 17-08-2019
IT For BFSI 50 YEARS OF BANK NATIONALISATION

TABLE OF CONTENTS

INTODUCTION…………………………………………………………… 3
HISTORY…………………………………………………………………… 5
CURRENT SCENARIO……………………………………………………..
11
SUMMARY………………………………………………………………….
13
RECOMMENDATIONS…………………………………………………..
14
REFERENCES……………………………………………………………..
15

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INTRODUCTION
This project aims to carry out a research work about nationalisation in the
banking sectors. Why nationalization is done? How does it impact the economy
of a country? What are the factors to be considered during nationalisation?
Current situation in India with respect to nationalisation? and many more the
questions that are to be answered at the end of this project.

What is Banking?
According to the Section 5(b) of Banking Regulation Act 1949, Banking is
defined as, “Accepting for the purpose of lending and investment, deposit of
money from the public, payable on demand or otherwise, and withdrawable by
cheque, draft, order or otherwise.”

What is Nationalisation?
When a private organization is taken over by the Government and Government
gets the complete control and ownership of the organization and the ex-
owners lose their investment then we call it Nationalisation.
Nationalisation is a Unilateral Action which means that ex-owners do not make
decision to transfer the ownership to the Government. It is the government
that makes the decisions. Stakeholders have to adhere to the Government’s
decision.

Reasons for Nationalisation

1. Government would get in hand huge resources which it could use for
many large-scale industry setups.
2. To enhance the growth of Priority sector – Agriculture, Export, Small
Scale Industry, etc.
3. To develop the backward and rural section by giving loans and other
facilities.
4. By including more banks in the public sector efficiency and
modernization can be improved.
5. High revenue can be attained by the government which will in turn help
the government to form capital and invest in large scale industries.
6. There would be uniform and consistent banking policies throughout the
country and there would be no ambiguity.
7. To encourage banking habits and to create banking habitat.

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8. To enable speedy transactions; Unacctounted transactionas and the

generation of black money can be eleiminated.

Effect of Nationalisation

Depending on one’s views, nationalization, or the threat of it, has several

results that can be noticed.

Executives

Partners (counting officials with critical premiums in the bank) lose cash when
banks are nationalized. On that, officials may procure less with liberal
remuneration bundles. At last, this disheartens moral.

Shareholders

Speculators additionally miss out who benefit from organizations that go for
broke. Preferably, this was disheartening financial specialists from placing cash
into daring individuals and makes it harder to raise capital for those
organizations.

Government Management

Government organizations take over regardless. Some contend that to oversee

complex associations the administration is not well prepared, and that
legislative issues can influence tasks. Others state that by safeguarding beset
banks and breathing life into them back (without letting the majority of the
advantages going to investors and officials) citizens can at last set aside cash.

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HISTORY
Banking is recorded in antiquated Indian sacred text like manusmriti and
arthshastra. An instrument called adesha was being used during the Mauryan
time frame (321–185 BCE), which was a request to pay the entirety on the note
to a third individual on a broker guiding him, which compares to the meaning
of a cutting edge bill of trade. The utilization of credit deeds proceeded into the
Mughal time and were called dastawez. Two kinds of advances deeds have
been recorded. The dastawez-e-indultalab was payable on interest and
dastawez-e-miadi was payable after a stipulated time. The utilization of
installment request by illustrious treasuries, called barattes, have been
additionally recorded.
Western sort of banking began since 1683 by Madras based officials of East
India Company. To be exact, British Government built up three administration
banks for their convience :-
Bank of Bengal in 1806
Bank of Bombay in 1840
Bank of Madras in 1846
All the 3 banks were converged in 1921 and ended up Imperial Bank of India. In
1955, Imperial Bank of India moved toward becoming State Bank of India. From
1921 till 1935 Imperial Bank of India was doing the capacity of national bank of
the nation. On first April 1935, Reserve Bank of India was set up by RBI Act
1934.

Nationalisation in India

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Banks in India with the exception of the State Bank of India (SBI), stay claimed
and worked by private people regardless of the arrangements, control and
guidelines of the RBI. By the 1960s, apparatus to encourage the advancement of
the Indian economy the Indian financial industry had turned into a significant.
Simultaneously, and a discussion had followed about the nationalization of the
financial business it had risen as a huge boss. Indira Gandhi, the then Prime
Minister of India, in the yearly gathering of the All India Congress Meeting in a
paper entitled Stray considerations on Bank Nationalization communicated the
goal of the Government of India.

From there on, the Government of India issued the Banking Companies
(Acquisition and Transfer of Undertakings) Ordinance, 1969 and nationalized
the 14 biggest business keeps money with impact from the 12 PM of 19 July
1969. These banks contained 85 percent of bank stores in the nation. Inside
about fourteen days of the issue of the mandate, the Parliament passed the
Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it got
presidential endorsement on 9 August 1969.

The following banks were nationalised in 1969:

 Union Bank

 Bank of Baroda

 Dena Bank

 Syndicate Bank

 Bank of India

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 Central Bank of India

 Allahabad Bank

 Indian Bank

 Indian Overseas Bank

 UCO Bank

 Canara Bank

 United Bank of India

 Punjab National Bank

 Bank of Maharashtra

A second round of nationalizations of six increasingly business banks followed

in 1980. The expressed explanation behind the nationalization was to give the
administration more control of credit conveyance. With the second round of
nationalizations, the Government of India controlled around 91% of the
financial business of India.

The following banks were nationalised in 1980:

 Vijaya Bank

 Oriental Bank of India

 Punjab and Sind Bank

 Andhra Bank

 Corporate Bank

 New Bank of India

Later on, in the year 1993, the legislature consolidated New Bank of India with
Punjab National Bank. It was the main merger between nationalized banks and
brought about the decrease of the quantity of nationalized banks from 20 to
19. Until the 1990s, the nationalized banks developed at a pace of around 4%,
closer to the normal development pace of the Indian economy.

Pre-Nationalisation

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The following observations were made during the pre-nationalisation

period-

1. Dramatic Increase in the Share of Industry and Decline in that of Trade and
Others
In business bank portion of industry expanded quickly. From 34% in 1951 it
legitimately expanded to 51% in 1961 and to 67.5% in 1968. Credit went to the
corporate area and just a little part to the little scale industry inside the modern
segment, the mass (around 80 percent) of bank. The fundamental recipients
were more up to date enterprises, for example, designing, iron and steel, and
synthetic compounds of the gradual bank credit to the modern segment.
Advances example worked on both the interest and supply sides of bank credit
were the variables in charge of the previously mentioned move in the. From one
perspective, the state arrangement, looked for the mechanical improvement of
the nation to a great extent through the advancement of huge enterprises in the
corporate segment under the structure of a blended economy and five-year plans
started in 1951.
2. Heavy Concentration of Bank Credit

Another element of the example of bank advances to industry is supportive of

enormous borrowers its profoundly slanted dissemination. As indicated by one
source, each with credit extraordinary of over Rs. 5 lakhs, though 12% of the
records with exceptional of not as much as Rs. 10,000 each got scarcely 4% of the
aggregate.

The size dispersion of borrowal records of business banks' (in mid-sixties)

demonstrated that 70% of absolute mechanical advances went to just 1% of the
complete number of borrowal accounts.

A comparable fixation issued by banks was seen on account of certifications (in

regard of conceded installments). The quantity of borrowal accounts itself
expanding from 10.78 lakhs in April 1961 to just 11.27 lakhs in March 1968 had
remained about stale during the sixties till 1968.

3. Low Share of Agriculture

All through the period (1951-68), right off the bat since business banks were hesitant
to give such credit as were not equipped with that in mind and also in light of the
fact that, as an issue of purposeful arrangement (of utilitarian specialization), the
requirements of rural credit should be met by the co-employable credit framework
horticulture kept on directing a low extent (somewhat more than 2%) of all out

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business bank credit. innovation under the HYVP (High-Yield-Variety Program) and
the more fragile segments yet from about the mid-sixties, the last was discovering it
progressively hard to meet the credit prerequisites of both huge ranchers receiving
new.

Post-Nationalisation
With expanding accentuation using a credit card to 'need divisions' and rise of
nourishment credit' (that is, credit for the obtainment of sustenance grains) as
a significant thing the key element of the post-nationalization period in the
field of distribution of credit has been developing utilitarian expansion. From
what it was in the pre-nationalization period these twin advancements have
prompted reallocation of sectoral credit.
During the concise time of the Social Control of Banks (1968) the idea of need
divisions for the allotment of business bank credit took unmistakable shape. At
first, three divisions, to be specific, horticulture, little enterprises, and fares, at
the suggestion of the National Credit Council were formally perceived as need
segments.
•Fall in the Share of Bank Credit to Large and Medium Industry and Rise in that of the
Small-Scale Industry
•Rise in the Share of Food Advances
•Bank Credit to Public Sector Units

Outside trade to have the option to meet the nation's enormous personality
developing remote trade commitments, the administration, as of late, has
received a few monetary and credit arrangement measures In perspective on
the fundamental need to elevate fares to win adequate.
Renegotiate to them for such credit and at low concessional pace important to
instigate banks Jo increment their credit for fares, the RBI has been giving
progressively liberal the renegotiate rule for increment in fare credit has
likewise been gotten upward every now and then. In 1994-95, Rs. 25,400
croreor 12.8 percent of the net bank credit the fare acknowledge of banks as
additional.

Criticism of Nationalisation
The nationalization of industry isn't viewed as attractive on the accompanying
grounds:
1. Exorbitant Management:-
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The administration of the nationalized business is entangled and clumsy. There

are various office and paid people for example directorate, territorial office
lead its administration.
2. Absence of basic leadership:-
All the fundamental issues are chosen by different authorities and advisory
groups. In the event of clashing perspectives, speedy choice can't be made for
the dire issues which is risky in business.
3. Absence of Efficiency:-
Nationalized ventures are overseen by salaried people who are commonly
discovered less proficient as contrasted and exclusive concerns. There is
additionally absence of adaptability and versatility where are resource of
private proprietorship.
4. Administration:-
There is broad and inflexible technique of the state apparatus by which
occasion is managed. Such stipulated guidelines has made the procedure of
work each muddled which results in postponement and loss of activity.
5. Nonappearance of benefit rationale:-
The salaried people are not worried about benefit. Accordingly, nationalized
undertaking barely run effectively because of absence of individual intrigue.
6. Odds of Loss:-
The loss of nationalized ventures is viewed as the loss of the country. So the
structure of nationalized economy will incredibly be affected by the
disappointment of such plan.
7. Constrained Investment:-
Financial specialists waver to contribute huge total of cash because of danger
of nationalization. Hence, volume of venture stays restricted in private area.
8. Undue Interferences:-
Nationalized endeavors are unfortunately meddled by ideological groups. Such
undue exercises are disabled in advancement of sound business.
9. Shocking to Public:-

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Open by and large condemns the goliath strategy of nationalization. So

government may not be in position to start new plans openly.
10. Free Supervision:-
The talented and effective specialists are supplanted after nationalization. The
charge normally taken over by the authorities who are awkward and
unpracticed to run the enterprises. So the generation volume is influenced
because of free supervision.
11. Questionable Situation:-
The mammoth strategy of state proprietorship does not stay for ever. It might
be changed by the change government which results in disarray and wavering.
12. Odds of Fraud:-
The controlling expert of the state ventures may play separation and bias. They
may choose untrustworthy and degenerate people. In this way fakes and
controls may happen in the exchange which causes misuse of people in general

CURRENT SCENARIO

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RBI

SCHEDULE NON SCHEDULE

STATE CENTRAL
COMMERCIAL COMMERCIAL
COOPERATIVE COOPERATIVE
BANK BANK
BANK BANK

INDIAN FOREIGN

PUBLIC PRIVATE

NATIONALISED
SBI RRBs IDBI
BANKS

The above pecking order demonstrates the present financial framework

progressive system where RBI is at the top administering every single other
bank. The Indian financial framework comprises of 27 open part banks, 21
private division banks, 49 remote banks, 56 local provincial banks, 1,562 urban
agreeable banks and 94,384 rustic helpful banks, notwithstanding agreeable
credit organizations. As of Q1 FY19, absolute credit reached out by business
banks flooded to Rs 86,976.2 billion (US$ 1,297.4 billion) and stores developed
to Rs 115,070.3 billion (US$ 1,716.4 billion).
After second round of nationalization there were 19 banks nationalized. On first
April 2019, two banks converged with Bank of Baroda subsequently making the
most of the current to 17 nationalized banks.
Current Nationalised banks are –

 Allahabad Bank

 Bank of Baroda

 Bank of India

 Bank of Maharashtra

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 Central Bank of India

 Canara Bank

 Indian Bank

 Indian Overseas Bank

 Punjab National Bank

 Syndicate Bank

 UCO Bank

 Union Bank

 United Bank of India

 Punjab and Sind Bank

 Oriental Bank of India

 Corporate Bank

 Andhra Bank

 New Bank of India

2019 marked “50 years of nationalisation”. 50 years prior, the Indian money
related area experienced a structural move, when Indira Gandhi government
nationalized the 14 greatest business banks in 1969. As indicated by numerous
market analysts nationalization of banks was the absolute most-significant
financial approach choice taken by any legislature after 1947. The effect of this
choice is considered by some to be, significantly more than the financial
changes of 1991. The center target for nationalization was to invigorate need
segments when the enormous organizations commanded credit profiles.
Despite the fact that the banks loaned credit, the disbursal to the country
zones and little scale borrowers was far less when contrasted with the business
in spite of the Banking Regulation Act, 1949. The credits by business banks to
industry almost multiplied between 1951-1968 from 34 to 68 percent, even as
the horticulture got under 2 percent. The administration of the time accepted
that the banks neglected to help its financial goals and subsequently, it should
expand its authority over them.

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SUMMARY
50 years back, fourteen noteworthy loan specialists that represented 85
percent of bank stores were nationalized under the then Prime Minister Indira
Gandhi-drove government. The monetary skill which started the 12 PM of July
19, 1969 was caught up with nationalization of six additional banks in 1980.
The legislature of the time driving the nationalization of manages an account
with a center goal of boosting need segments when the enormous
organizations overwhelmed credit profiles. The administration likewise
accepted that the loan specialists were not having the option to help its
financial destinations and henceforth, ought to grow its power over them.
With the most recent 50 years previously having been passed, the PSU banks
are handling a few issues including flooding terrible advances and political
impedance. The key issues with the PSU banks are administration, political
obstruction and to a degree mastery which might not have kept pace in the
territory of credit assessment, Madan Sabnavis, Chief Economist, CARE Ratings
disclosed to Financial Express Online. The issues should be tended to soon, he
included.

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RECOMMENDATIONS
The government is taking several measures to strengthen the banking system
of India and nationalisation is one of them. Despite nationalisation having its
own disadvantages still it is widely adopted and accepted by government, RBI,
lower, middle- and upper-class people. Government should create awareness
regarding the banking operations, activity and schemes offered to various class
of people especially rural and semi urban. For this purpose, government can
conduct regular workshops, discussions, forum, etc. Government should also
focus on NPA which is a major challenge India has been facing due to moderate
growth in economy and low capex demand.

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REFERENCES
[1] https://www.thebalance.com/what-does-it-mean-to-nationalize-the-banks-
3969573
[2] https://accountlearning.com/top-10-reason-for-nationalization-of-
commercial-banks/
[3] https://en.wikipedia.org/wiki/Banking_in_India
[4] http://www.yourarticlelibrary.com/banking/pre-nationalization-and-post-
nationalization-period-of-commercial-bank/40830

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