DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : P. Samba Murthy,
Designation : Head of Department

Branch : D.C.C.P.
Institute : S.R.R.S. Govt. Polytechnic,
Sircilla, Karimnagar District
Year/Semester : V Semester
Subject : Banking – I
Subject Code : CCP- 504(B)
Topic : Indian Banking Industry – Growth
Duration : 50 Minutes
Sub-Topic : Achievements of Goals of
Nationalization in respect of
Lending
Teaching Aids : PPTCCP504(B).25 1
Objectives

On completion of this period, you would be able to

 Understand the critical analysis of the goals achieved
by commercial banks.

CCP504(B).25 2
Recap

We have, so far, discussed

 Achievements of goals of Nationalization in
respect of expansion of
 Branches
 Deposits
 Lending to Various sectors.

CCP504(B).25 3
CRITICISM BY ESTIMATES COMMITTEE

 Undoubtedly, the commercial banks have made

phenomenal progress after nationalization.
 But, the critics not only point the various
inadequacies and limitations of public sector banks
but also express fears about the dangers of
nationalization.

CCP504(B).25 4
CRITICISM BY ESTIMATES COMMITTEE

Various defects of commercial banking system in

India, particularly, after nationalization of banks are :

CCP504(B).25 5
CRITICISM BY ESTIMATES COMMITTEE

 The committee headed by Mr.R.K.Sinha have

expressed dissatisfaction over the working of
nationalization of banks.
 It is of the view that the banks have largely failed in
achieving the main objectives of granting loans to the
priority sectors removing regional disparities through
developing banking facilities in backward areas.

CCP504(B).25 6
INSUFFICIENT HELP TO PRIORITY
SECTORS
 The help is not sufficient for the large size of the
sectors and rate of interest in the advances has
slowed down after nationalization.
 The rate of advances increased but at declined
rate.
 The main reason for this slow progress was that
the banks officials were not vested with the new
objectives and were more worried about the
unsatisfactory recovery performance.

CCP504(B).25 7
INADEQUATE FACILITIES IN RURAL
AREAS

 Though there was expansion of deposit

mobilization and credit expansion in rural areas
but it is not adequate to meet the financial needs
of the population living in the rural areas.
 The stipulated deposit-credit ratio of 60% has
not been achieved in the rural areas.

CCP504(B).25 8
 Regional Imbalances:

 Though the overall expansion in the bank

branches has taken place in the country, their
expansion is not equitably distributed among the
different states.
 According to the Reserve Bank’s reports, about
half of the banking institutions concentrate only
very limited regions.

CCP504(B).25 9
 Insufficient Deposit
Mobilization:

 Though there is good progress on the deposit

mobilization front much remains to be done.

 The fact that the increase the total savings in the

country, there still exists a larger scope for
expansion of deposits.

CCP504(B).25 10
 Problem of Liberal Credit Policy:

 Although liberal credit policy is necessary for

providing financial support to the weaker
sections of the rural community but such a policy
may prove harmful for stability of the banking
system.
 The banks now are facing the problems of heavy
overdue loans and economically unviable
branches.

CCP504(B).25 11
Sound Principles Ignored:

 Normally, the growth of credit should go hand in

hand with growth of deposit mobilization.
 But in the initial years of nationalisation, the
credit expansion of banks was about 24%...
 …Compared to the deposit expansion of about
17%
 This was an unwise and risky trend.

CCP504(B).25 12
 Low profitability:

 A major defect of banking after nationalisaion is

that the nationalised banks are either operating
under losses or experiencing falling dividends.

 The rate of profit is being declined considerably in

the post-nationalisation. The low profitability is
caused by two types of factors:

CCP504(B).25 13
 Low Efficiency:

 Nationalization has created bureaucratic attitude in

the functioning of banking system.
 Lack of responsibility and initiative, redtapsim,
inordinate delay are common features of
nationalised banks.
 As a consequence, the efficiency of these banks
has reduced.

CCP504(B).25 14
 Political Pressure:
 Political interference also disturbs the smooth
working of the nationalised banks.

 Political pressure in the granting of loans to

particular parties, the selection of personnel,
opening of branches etc., creates difficulties for
these banks.

CCP504(B).25 15
Future of Banking System

Future of the banking system in India depends upon

 (a) Adopting greater sophistication, modern work

technology and innovation.

 (b) Involving new and growing areas of business areas

and increasing contacts with international banking and
capital markets.

CCP504(B).25 16
Summary

The banking industry suffers certain serious

problems such as
 Growing inefficiency,
 Alarming over dues,
 Low profitability,
 Political interference,
 Regional imbalances

CCP504(B).25 17
Frequently Asked Questions
1) State the reasons for low profitability of
Commercial Banks

CCP504(B).25 18
Quiz
1) The efficiency and profitability of Indian banks
have increased as a result of their nationalisation
a) True
b) False

CCP504(B).25 19
Quiz

 Indian banks suffer from alarming overdues

a) True
b) False

CCP504(B).25 20