On July 19, 1969, former Prime Minister Late Indira Gandhi announced that 14 major commercial banks, which controlled 85 per cent of bank deposits in country, had been nationalised. Bank nationalisation was not a new concept for India as in 1955 the Imperial Bank of India was nationalised and renamed as State bank of India (SBI). In 1959 seven subsidiaries of SBI were formed by nationalising seven state banks. But it was the 1969 nationalisation that caused maximum impact on political and economic spectrum so much so that even Jayaprakash Narayan called this step as ‘a masterstroke in political sagacity. On April 15, 1980, six more private sector banks having demand and time liabilities of not less than Rs 200 crore each were nationalized thereby extending further public control over the banking sector. The nationalization of banks in India was primarily done for two reasons. First, the partition of India in 1947 adversely affected the banking activities especially in Punjab and West Bengal. Secondly, the government believed that the ownership of the Bank by the sovereign will give new confidence to the customers and that it would dispel the suspicions existing in the minds of the people with regards to the capabilities of the bankers in the private sector. Before nationalization of commercial banks credit was concentrated to few hands and this formed Industrial Monopoly. No person except big Industrialist could get loan and advances. This neglected the other smaller industrialist. So, commercial banks were nationalized to curb the monopolizing tendencies. According to many economists nationalization of banks was the single-most-important economic policy decision taken by any government after 1947. The impact of this decision is considered by some to be, even more than the economic reforms of 1991. The Government of India wished to play an active role in the economic life of the nation and with this the government adopted a mixed economy. The two sectors, private and public were allowed to function independently of each other. The 50th anniversary of the nationalisation of banks can be a good occasion to systematically analyse the current performance of the PSBs and the necessary steps can be taken to improve the banking sector. After independence, the Government of India (GOI) adopted planned economic development for the country. Nationalisation was in accordance with the national policy of adopting the socialistic pattern of society. After the nationalization of banks, the branches of the public sector bank India rose to approximately 800 per cent in deposits and advances took a huge jump by 11,000 per cent. Banking under government ownership gave the public implicit faith and immense confidence about sustainability of the banks. In recent times, there is an increased call for privatisation of the banks to solve the current problems faced by the banking sector. The growth of privatization has not, of course, gone uncontested. Critics of widespread privatization contend that private ownership does not necessarily translate into improved efficiency. In fact, the Indian banking system has reached even to the remote corners of the country. We must not make haste in going for privatisation of banks, rather it must focus on comprehensive governance reforms, resolution of NPAs and creating a free market so that investment can be reinvigorated and wheels of the economy can again get back on track.
