NATIONALISATION OF BANKS

BACKGROUND: Socialistic pattern of society. Functioning of joint sector- public & private sector. Imperial Bank of India was nationalised i.e. SBI 1955. Nationalisation of SBI subsidiaries 1959.

Economic Imbalance. Hazari Committee Report, 1967. National Credit Council in 1968. Study report under the Chairmanship of Dr.D.R.Gadgil recommended the nationalisation of banks.

Banking Laws (Amendments) Act, 1968 (1-2-1969). (known as social control). Dy PM Mr. Morarji Desai to regulate our social and economic life so as to attain the optimum growth rate for our economy and to prevent at the same time monopolistic trend, concentration of economic power and misdirection of resources.

Stage One 14 banks on 14th July, 1969. Taken over by Govt. under BC(A&TOU) Act,1969.

Stage Two 6 banks on 15th April, 1980. Under BC(A&TOU) Act, 1980.

OBJECTIVES/REASONS
VIEWS:

The then PM Smt. Indira Gandhi the present decision to nationalise major banks is to accelerate the achievements of our objectives. The purpose is to expand bank credit to priority areas which have hitherto been somewhat neglected .

1.
2.

3.

4.

5.

The removal of control by a few. Provision of adequate credit facilities to agri, small industries and exports. The giving of professional bent to bank management. The provision of adequate training as well as reasonable terms of service for bank staff. The encouragement of new classes of entrepreneures.

Prof. Sayers Efficiency issue Monetisation issue Integration issue Socialisation issue

1. 2. 3. 4.

Others Views 1. Preventing concentration of economic power. 2. Social control was not adequate. 3. Channel the bank finance to plan priority sector. 4. Greater mobilisation of deposits.

5. Helps to agriculture. 6. Balanced regional development. 7. Greater control by the RBI. 8. Stability of banking structure. 9. Service to staff. 10. Towards socialism. 11. New schemes.

PRIORITY SECTOR LENDING

Introduction:

The imbalanced development process of Indian economy during pre and post independence has badly affected the public at large.

The object of banking is balanced distribution of savings and investments equally to all the areas and persons. Agri sector accounted less than 2 percent of bank credit & small, cottage and tiny business units, retail traders in rural areas were far away from bank credit.

Priority Sector: The term priority means preferential or a step early to others. The sector which is preferred while providing facilities is called a priority sector.

Priority Sector includes Primary sector Agriculture and allied activities. Secondary sector Industries. Tertiary sector Services.

Primary sector Agri finance Direct Finance

Short Term loans

a)
b) c) d)

Crop Loans Working Capital Term loans Agri Jewel Loans Agri Produce Loans

Medium & Long Term Loan a) Minor Irrigation Projects b) Land Improvements

Indirect Finance Loans are given to those assisting the agri allied activities.

Secondary sector Industries Direct Finance Indirect Finance

Tertiary sector Services It includes retail trading, education, housing, transportation etc.

Village Adoption Scheme

Introduced in the year 1973. A survey of the village proposed to be adopted is done. SBI rural branches adopted the villages that will receive the integrated financial needs.

Upto the year 1985, 85000 villages were adopted by SBI branches and the finance provided was around .760 cr to 23 lakh farmers.

Criteria: Short radius from the branch. Irrigation. Not financed by co-operative sector. Large number of small & medium farmers.

Lead Bank Scheme

Introduction: To remove regional imbalance. Nationalisation of banks in 1969. The concept of social banking was introduced. GOI - study group National Credit Council - Prof. D.R. Gadgil.

RBI appointed a committee F.K.M. Nariman. Recommended the scheme called Lead Bank Scheme in the year 1969.

It is a scheme in which a bank will lead or take the responsibility of developing banking activities in a specified area i.e. district. Lead bank is called Consortium Leader. As on march- 2002, a total of 580 districts all over the India have been converted under the LBS.

Functions: It has to conduct surveys, identify the requirements, potentials etc. Preparation of service area credit plans and annual plans etc. Monitoring the progress. Monitoring the progress of the implementation of the special programmes like IRDP.

Convening of meetings district consultative committee, district level review committee, standing committee etc. Co-ordination of the efforts of the government and other agencies. Rapid bank expansion.

Service Area Approach

It was first introduced in the year 1989 by RBI. On the recommendation of Dr.P.D.Ojha former governor of RBI. Orderly and planned development of villages. The main objective was to assign specific areas of villages to rural/semi-urban branches and ask the banks to provide adequate credit for productive purposes.

Objectives:

Creation of employment opportunities. Planning for the balanced growth. Upliftment of poor sections. Framing annual credit plans. Continuous evaluation of plans.

Components:
Identification of villages. Survey report. Annual credit plans. Co-ordination. Monitoring of the scheme branch wise, district wise & state wise.

Differential Rate of Interest Scheme (DRI)

Commercial banks introduced a special scheme called DRI in 1972. Objective: The main purpose of the scheme was to provide bank finance to the economically backward section of the society. Concessional rate of interest 4% p.a.

Area of operation: Throughout the country. Eligibility Criteria: Income ceiling Rs. 7200 p.a. in urban/semi urban areas and Rs. 6400 p.a. in rural areas. Size of land not exceed one acre of irrigated land and 2.5 acres of unirrigated land under the scheme are SCs/STs.

The banks are required to lend under the scheme at least one percent of their aggregate advances. Loan Amount: Rs.6500 for productive activities. Security: No collateral security. Repayment: Not exceeding 5 years. Reservation: 40 % reserved for SCs/STs.

Self Employment Schemes