Achievements of Commercial Banks in India after Nationalisation

       Achievements of Commercial Banks in India after Nationalisation

                                                                The nationalisation of 14 major banks with deposits of Rs.50 crores or more on july 19,1969 and another 6 banks in 1980, was described as ' historic','momentous', 'bold', and 'timely' by some economists while it was vehemently criticised as wrong and untimely by others.

                                                                   Mrs. Indira Gandhi, then Prime Minister, nationalised banks in 1969 argued that the Indian commercial banking system did not play it's proper role in the planned development of the nation. According to her, the banking system was controlled by industrialist and business magnates who had used public funds to build up private industrial business units. Agricultural credit was never seriously considered. Public savings were used to support anti-social and illegal activities against the general public.The Government of India tookover 14 top commercial banks in july 1969.In 1980 the Government tookover another 6 commercial banks.these were in addition to the Sate Bank of India and its subsidiaries which were taken over in 1955.

     Achivements of Commercial Banks in India after Nationalisation

(1) Number of Banks in India

           In 1950-51, there were 430 commercial banks but the number of banks declined rapidly due to RBI's policy of mergers and amalgamations of small banks with big banks,as a measure of strengthening the banking system. In 1960-61, for instance ,there were as many as 256 small non-scheduled commercial banks but in 2000-01 there were none: all of them were merged with bigger banks or had become large banks themselves . There are 292 reporting scheduled commercial banks in the country , at the end of March 2005.

(2) Deposit Mobilisation by Commercial Banks

          Expansion of bank deposits has been an important feature in recent years . Planned economic development,deficit financing and increase in currency issue led to increase in bank deposits. At the same time,banks have contributed greatly to the development of banking habit among people through sustained publicity, extensive branch banking and relatively prompt service to customers. Bank nationalisation gave a great encouragement to deposit mobilisation, due partly to the expansion of a network of bank branches and partly to the incentive given to savers.

        Since 1950-51 deposit mobilisation and supply of credit by banks were growing at a rapid rate. For instance, growth of bank deposits in India of all scheduled commercial banks was as follows;
      1951-71 (20 years)-700% of 7 times
      1971-91(20 years)-3260%or 32.6 times
      1991-2003 (13 years)-500% or 5 times
      Till recently, there was a sharp rise in time deposits as, for example, by 16 to 20 per cent per annum while demand deposits rose at a relatively lower rate. The large increase in time deposits was due to increase in interest rates of bank deposits and large inflow of deposits from NRI's. The trend has now been reversed.

(3) Expansion of Bank Crediton 

         Side by side with the expansion of bank deposits,there has been continued expansion of bank credit also resulting in the rapid expansion of industrial and agricultural output. The banks are also meting the credit requirements of industry, trade and agriculture on a much larger scale than before.
Just as bank deposits have expanded, bank credit too has expanded tremendously since July 1969 from about Rs. 4,700 crores in 1970-71 to over Rs.7,29,220 crores in 2004-05.

        In recent years, bank credit has picked up smartly around 20 to 21 per cent annum and many factors have contributed to this;
(a) Rise in lendable resources of commercial banks as a result of large reduction in reserve requirements (under CRR and SLR );
(b) Sharp increase in food credit mainly due to increased food procurement operations;
(c) Increased demand for credit from public sector undertakings and the large increase in export                 credit;      
(d) The reduced cost of credit with the lowering of minimum lending rates of interest,and so on.

             In the sphere of bank credit, some of the old abuses and mistakes regarding bank credit are still to be met with. For instance, bank credit is freely available to well-established houses if industry and trade without much difficulty, but tiny and small units find it really difficult to get credit from banks;even now, some powerful but unscrupulous speculators are able to use bank funds to corner shares and acquire control over companies.

(4) Branch Expansion

         Rapid economic development pre-supposes rapid expansion of commercial banks.Initially,the banks were conservative and opened branches mainly in metropolitan cities and other major cities.
Branch expansion gained momentum after nationalisation of major commercial banks and the introduction of the Lead Bank Scheme.

       It is clear that in a matter of 3 decades after bank nationalisation , there was nearly 800 per cent increase in number of branches from 8,260 to 66,240,but the most spectacular progress was in rural branches - increase was from about 1,860, to 32,460 bank offices. With the progress of branch expansion programmes, the national average of population per bank office has progressively declined from 65.000 to 15.000. A rural branch office frequently serves 15 to 25 villages within a radius of about 16 km . Some banks have started mobile offices and satellite offices.

     The massive branch banking ,significant though it is,shows the magnitude of the problem before the commercial banking system ; at present only about 32,460 villages out of 5 lakh villages are covered by commercial banks directly.

(5) Development - oriented Banking

           For a long time , bank were unwilling to venture into new field of financing . In recent years ,banking has moved away from the traditional pulls into new directions. The concept of banking has widened from acceptance of deposits and mere loaning of funds to development-oriented banking.Banks are increasingly catering to the needs of industrial and agricultural sectors. From short- term financing, banks have been gradually shifting to mediumand even long-term lending,from well-established large industrially shifting to medium and even long -term lending.From well-established large industrial and business houses, banks are positively shifting to assisting small weak industrial and business houses ,banks are positively shifting to assisting small and weak industrial units ,small farmers,artisans and other hitherto neglected groups of people in the country.

             By far the most significant aspect of the new awareness and involvement in devolepment effort since nationalisation, is the adoption of the lead bank scheme under which all the districts of the country are allotted to some bank or the other. The lead bank of a district is actively engaged in
(a) Opening bank offices in all important localities;
(b)Providing maximum credit facilities for development in the district;and
(c)Mobilising the saving of the people in the district.

             The performance of the lead banks should be judged not by the number of branches opened by them but by the number of projects helped by them for improving productivity or creating employment opportunities which are expected to become catalysts for development of the district. Since February 1988, commercial banks have adopted a new strategy of rural lending known as "Service Area Approach" under which each semi-urban and rural branch of commercial bank is assigned a specific area, comprising a cluster of villages  within which it will operate,adopting a planned approach for economic growth