Bank Nationalisation - 42 years of Socio-Economic Justice in India.

ON July 19, 1969 - forty two years ago - 14 major private banks were nationalised in India. It was what Jayaprakash Narayan, the veteran socialist-national leader of India, described the step as a "masterstroke of political sagacity", when Smt Indira Gandhi nationalized 14 Banks in 1969 and not only scored over her rivals in the Congress Party, all much senior and experienced, known as “Syndicate” group, but also won over the hearts of millions of Indians which made her sweep the General elections later. She had become the ‘messiah’ of the poor and people fell for her slogan “garibi hatao”. She said aptly, “Woh kahte hain Indira hatao, main kahti hoon Garibi Hatao”. Sadly, the Congress Party is moving on the policy of “Garib Hatao” as its decision making becomes quagmire of corporate dictation, forgetting the common man.

Let us see how bank nationalization happened and why? Today Reserve Bank of India is the central bank of the country. Central banks are a relatively recent innovation and most central banks, as we know them today, were established around the early twentieth century.The Reserve Bank of India was set up on the basis of the recommendations of the Hilton Young Commission. The Reserve Bank of India Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank, which commenced operations on April 1, 1935.

The Bank began its operations by taking over from the Government the functions so far being performed by the Controller of Currency and from the Imperial Bank of India, the management of Government accounts and public debt. The existing currency offices at Calcutta, Bombay, Madras, Rangoon, Karachi, Lahore and Cawnpore (Kanpur) became branches of the Issue Department. Offices of the Banking Department were established in Calcutta, Bombay, Madras, Delhi and Rangoon.
Burma (Myanmar) seceded from the Indian Union in 1937 but the Reserve Bank continued to act as the Central Bank for Burma till Japanese Occupation of Burma and later upto April, 1947. After the partition of India, the Reserve Bank served as the central bank of Pakistan upto June 1948 when the State Bank of Pakistan commenced operations. The Bank, which was originally set up as a shareholder's bank, was nationalised in 1949.

Despite the provisions, control and regulations of Reserve Bank of India, banks in India except the State Bank of India or SBI, continued to be owned and operated by private persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. The Government of India issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969.

A second dose of nationalization of 6 more commercial banks followed in 1980.

It is easy now to take for granted, or even to dismiss or disparage, what an extraordinary and important step that was. It was not a step taken at random or because of the whims of the leadership of the time, but reflected a process of struggle and political change which had made this an important demand of the people. The political situation at that time had some eerie similarities to the present one: a weakened Congress Party, in which Indira Gandhi sought to establish her position vis-à-vis the “syndicate” of older and more established Congress leaders by enlisting the support of left elements both within and outside her party. Bank nationalisation was one fallout of this political configuration, which had been placed on the agenda by progressive movements and campaigns for this. In these struggles, incidentally, hundreds of people even lost their lives, giving some idea of the intensity of the demand and the violence of the opposition.

The government's banking policy has paid rich dividends over the last five decades, especially after 1969 when 14 major private banks were nationalised. The policy has resulted in the creation of the massive network of the banking structure in the country. The major chunk of the structure was contributed by the nationalised banks, which number 27 at present.
According to bank economists, during the last 42 years of nationalisation, the branches of the public sector banks rose 800 per cent from 7,219 to 57,000, with deposits and advances taking a huge jump by 11,000 per cent and 9,000 per cent to Rs 5,035.96 billion and Rs 2,765.3 billion respectively.Contrary to the popular belief, employee productivity has been rising in the nationalised banks over the period, the economists said. Productivity per employee in respect of business volume (both deposits and advances) has gone up from Rs 250,000 in 1969 to Rs 4,780,000 in 1993. Accordingly, profits of these banks went up to Rs 30 billion in 1993 as against Rs 90 million at the time of the nationalisation, they said.

These banks also contributed to the generation of employment. Their staff strength increased by 300 per cent over the period to 900,000.

The economists said the growth of the banking sector after the nationalisation was unprecedented anywhere in the world. It is particularly true of branch expansion to every nook and corner of the country. While there were hardly any branch in the rural areas in 1969, 35,000 bank branches are operating there at present.
The need for the nationalisation was felt mainly because private commercial banks were not fulfilling the social and developmental goals of banking which are so essential for any industrialising country. Despite the enactment of the Banking Regulation Act in 1949 and the nationalisation of the largest bank, the State Bank of India, in 1955, the expansion of commercial banking had largely excluded rural areas and small-scale borrowers.

The developmental goals of financial intermediation were not being achieved other than for some favoured large industries and established business houses. Whereas industry’s share in credit disbursed by commercial banks almost doubled between 1951 and 1968, from 34 per cent to 68 per cent, agriculture received less than 2 per cent of total credit. Other key areas such credit to exports and small-scale industries were also neglected.

Question arises that with the policies being taken up and followed by the Government of India at present are the goals being met or are we becoming just another example of ‘Banana Republic’?
We have to think and decide.