• To make banking system align itself to the needs of economy and policies of the Government, on July 19, 1969 fourteen (14) of the major private sector banks were nationalized as a part of social control over banks. This was an important milestone in the history of Indian banking. This was followed by the nationalization of another six private banks in 1980.
• The 14 banks were nationalized under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. Criterion for selection of these banks was that those which had deposit of Rupees 50 crores and above as on the date of Ordinance issued on 19th July, 1969.
These banks were :
1. Allahabad Bank
2. Bank of Baroda
3. Bank of India
4. Central Bank of India
5. Dena bank
6. Canara Bank
7. Indian Overseas Bank
8. Bank of Maharashtra
9. Punjab National Bank
10. United Bank of India
11. Union Bank of India
12. Syndicate Bank
13. Indian Bank
14. United Commercial Bank
This process was followed again in 1980 when another lot of six banks were nationalized under Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980. Banks nationalized in second stage were:
1. Punjab & Sind Bank
2. Oriental Bank of Commerce
3. New bank of India (now merged with Punjab National Bank)
4. Vijay Bank
5. Andhra Bank
6. Corporation Bank
With the nationalization of these banks, the major segment of the banking sector came under the control of the Government. The nationalization of banks imparted major impetus to branch expansion in un-banked, rural and semi-urban areas, which in turn resulted in huge deposit mobilization, thereby giving boost to the overall savings rate of the economy. It also resulted in scaling up of lending to agriculture and its allied sectors.
In 1975 five Regional Rural banks were established on 2.10.1975 through an Ordinance. The ordinance was replaced by Regional Rural Banks Act, 1976, with the main objective to extend banking facilities to the un-banked rural areas along with commercial banks and cooperative banks.
Stage-2 Expansion Stage
This stages phase covers the period from late sixties (1969 to mid eighties). There was rapid expansion, both vertical and horizontal i.e. geographical spread as well as administrative spread. There was effort to fulfill nationalization objectives of expansion.
There was re-orientation of credit flow policy during this period so as to benefit the neglected sectors of the economy, like agriculture, small scale industries and small borrowers.
Stage-3 Consolidation Phase
This phase started from early eighties to start nineties when rapid expansion of banks faced with certain serious problems of control and economic viability of certain branches, more particularly rural branches. This phase also saw the problem of manpower, their training and positioning of branches. Branch expansion was slowed down during this period and banks started addressing the gaps that occurred during period. Staff productivity, recovery of advances, profitability etc. were some major problems.
Stage-4 Banking Reform Phase
To create a strong and competitive banking system, a number of reform measures were initiated in 1991. The thrust of the reforms was on increasing operational efficiency, strengthening supervision over banks, creating competitive conditions and developing technological and institutional infrastructure. These measures led to the improvement in the inancial health, soundness and efficiency of the banking system.
One important feature of the reforms of the 1990s was the permission to open new private sector banks. Following this decision, new banks such as ICICI Bank, HDFC Bank, IDBI Bank,Development Credit Bank (DCB), Kotak Mahindra Bank, InduSind Bank, Yes Bank and UTI Bank (now Axis bank) were set up.
From 1991 onwards till today, banking industry has seen the reforms in terms of their management and business policies. The main aim of reforms is to create a vibrant financial sector that is efficient, competitive and responsive to the needs of the economy and the people at large.
(a) Main focus of the reforms was:
(b) Strengthening of financial institutions, and integration of domestic financial system with global system of banking and economic system.
Policies were made in such a way that it could provide banks with :-
(a) greater flexibility in banking operations
(b) greater accountability to shareholders, and
(c) greater control over bank functions, and
(d) safety through prudential norms and supervision.
Based on the happenings in the domestic and international market, Indian banking system is gearing up for meeting new challenges like:
(i) Banks entering into greater specialized business like retail, housing, personal sector, corporate sector etc.
(ii) Banks have to look for more non-fund based business (NFB), like advisory services. merchant banking advisory services, guarantee business, consultancy business services etc.
(iii) Creating a strong image of the organization (brand image); customer delight and excellence etc.
(iv) The concept of Universal Banking is catching up fast. (Universal bank means where a bank takes up both the functions of long term lending development financial institutions as well as that of commercial banks. In other words a universal bank lends both short term (working capital) as well as term loan (long tern finance).
• Export-Import Bank (Exim Bank) was established in 1982 (1.1.1982) to help entrepreneurs financially, in terms of long term and short term funds, to increase exports and to act as a controller of the business of the export and import.
• Then came the National Bank for Agriculture & Rural Development (NABARD) in 1984 on the recommendation of Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD). NABARD was set up under the Parliament Act 61 of 1981.