CHANGE IN INDIAN BANKING SYSTEM
SOCIAL CONTROL OF BANKS
The concept of 'social control of Banks' was evolved by the All India Congress Committee (AICC) in 1967. It was approved by the government of India ,and was officially introduced on 14th December 1967.
The All India Congress committee defined social control of Bank as "greater participation of banks under the effective guidance of the state in the mobilisation of deposits and allocation of credits to the socially desirable sectors of the economy which would ensure balanced material benefits to the nation at large." In short, social control of banks means "greater and stricter control over private sector banks and and regulation of their activities in the interests of the society at large." It is different from nationalisation . The difference between nationalisation and social control is that, under nationalisation , both ownership and control of banks vest in the Government, whereas under social control, ownership of banks is in private hands, and only the control is vested in the hands of the Government. It is for this reason that social control is considered as a via media between nationalisation and private ownership and control.
WORKING OF SOCIAL CONTROL OF BANKS
For the implementation of the scheme of social control of banks, the Government had taken two important steps, viz, (1) the establishment of the National Credit Council and (2) the enactment of the Banking Laws (Amendment) Act of 1968.
The National Credit Council was set up in February, 1968. It was required to :
(a) Assess the demand for bank credit from different sectors of the economy.
(b) To determine the priorities in the country with a view to ensuring efficient use of the overall resources.
(c) To co-ordinate the lending and investing policies of the different financial institutions in the country with a view to ensuring efficient use of the resources.
(d) To consider all other related matters.
The council ha done good works. It had assessed the demand for bank credit and laid down the credit priorities. It recommended the introduction of the lead bank scheme for mobilising rural savings and for meeting the credit requirements of rural areas effectively.
The Banking Laws (Amendement) Act of 1968 came into effect from 1st February, 1969. This Act introduced legislative measures for social control of banks. It introduced the following measures.
( a) It insisted on the reconstitution of the board of directors of the commercial banks. It laid down that not less than 51% of the total number of members of the board of directors of a bank should consist of persons who have specialised knowledge or practical experience in banking, economics, finance, general economy, co-operation, small-scale industries,law and accountancy. It also laid down that the chairman of a bank should be a professional banker,and not an industrialist.
(b) It placed restricitions on loans to directors. It laid down 'that no loan should be given to directors or concerns in which the directors are interested. Loans already given ot directors and their concerns should be recovered within 3 years.
(c) It provided for the Government's take-over of any bank, which contravenes any of the provisions of the Act, especially those relating to the provision of credit to priority sectors,with out resorting to any special legislation for the take-over.
The provisions of the Act were carried out by the banks sincerely.All banks reconstituted their board of directors. They modified their lending policies in favour of the priority sectors.
NATIONALISATION OF COMMERCIAL BANKS
Ever since independence, there was a demand for nationalisation of the commercial banks in India. It was demand for the following reasons:
(a) the resources of the commercial banks were misused. they were used mainly for the benefit of the directors, their relatives and friends and not for the society at large.
(b) private banks were responsible for the concentration of wealth and economic power in the hands of a few capitalists and industrialists.
(c) bank credit was given mainly to big industrialist and businessmen. It was not made available to small farmers, small industrialist , exporters and new entrepreneurs who had talent, but could not offer any acceptable security.
(d) Bank credit was given for anti-social activities like hording and speculation.
(e) Mobilisation of deposits in rural and semi-urban areas by the private commercial banks was unsatisfactory.
However, the Government felt, at that time, that nationalisation of banks was not needed for solving these problems, and mere social control of banks would be sufficient. therefore, it introduced the scheme of social control of banks on 14th December, 1967.
FIRST PHASE OF NATIONALISATION
No Doubt ,the scheme of social science control of banks worked very well.It had shown good results within a short period of six months.But the Government felt that it was inadequate for the purposes for which it was introduced. SO on 19th july,1969,it announced the nationalisation of the fourteen major Indian scheduled banks with deposits of Rs.50 crores or more,viz.,(1)The Central Bank of India Ltd.,(2)The Bank of India Ltd.,(3)The Punjab Ntional Bank Ltd.,(4)The Bank of Baroda Ltd.,(5)The United Commercial Bank Ltd.,(6)The Canara Bank Ltd.,(7)The United Bank of India Ltd.,(8)The Dena Bank Ltd.,(9)The Union Bank of India Ltd.,(10)The Allahabad Bank Ltd.,(11)The Syndicate Bank Ltd.,(12)The Indian Overseas Bank Ltd.,(13)The Indian Bank Ltd.,and(14)The Bank of Maharashtra Ltd.
An ordinance was promulgated (i.e.,issued) on 19th july,1969 nationalising the fourteen major Indian scheduled banks.The ordinance was replaced by the Banking Companies(Acquisition and Transfer of Undertakings) Act of 1969.
Immediately after the enactment of the Banking Companies(Acquision and Transfer of Undertakings Act of 1969 nationalising the fourteen major Indian Scheduled Banks,certain write petitions were filed in the supreme court challenging the validity of the Act.After a prolonged hearing of the case,the Supreme Court struck down the Act on 10th February,1970 on the grounds of hostile discrimination and unfair compensation. But four days after the Supreme Court's judgement,i.e.,on 14th February,1970,a new ordinance was promulgated to remove the loopholes in the earlier ordinance and to renationalise the fourteen major Indian commercial banks retrospective effect from 19th July,1970,The new ordinance was replaced by the Banking Companies(Acquisition and Transfer of Undertakings) Act of 1970.
SECOND PHASE OF NATIONALISATION
Again, on 15th April, 1980,six more banks, whose demand and time liabilities (i.e.,total deposits) exceeded Rs.100 crores were natinalised. Those six banks were (1)The Andhra Bank Ltd.,(2)The Corporation Bank Ltd.,(3)The New Bank of India Ltd.,(4)The Oriental Bank of Commerce Ltd.,(5)The Punjab and Sindh Bank Ltd.,and (6)The Vijaya Bank Ltd.,
No doubt, the scheme of nationalisation of banks worked satisfactorily,yet it has long way to go...
The concept of 'social control of Banks' was evolved by the All India Congress Committee (AICC) in 1967. It was approved by the government of India ,and was officially introduced on 14th December 1967.
The All India Congress committee defined social control of Bank as "greater participation of banks under the effective guidance of the state in the mobilisation of deposits and allocation of credits to the socially desirable sectors of the economy which would ensure balanced material benefits to the nation at large." In short, social control of banks means "greater and stricter control over private sector banks and and regulation of their activities in the interests of the society at large." It is different from nationalisation . The difference between nationalisation and social control is that, under nationalisation , both ownership and control of banks vest in the Government, whereas under social control, ownership of banks is in private hands, and only the control is vested in the hands of the Government. It is for this reason that social control is considered as a via media between nationalisation and private ownership and control.
WORKING OF SOCIAL CONTROL OF BANKS
For the implementation of the scheme of social control of banks, the Government had taken two important steps, viz, (1) the establishment of the National Credit Council and (2) the enactment of the Banking Laws (Amendment) Act of 1968.
The National Credit Council was set up in February, 1968. It was required to :
(a) Assess the demand for bank credit from different sectors of the economy.
(b) To determine the priorities in the country with a view to ensuring efficient use of the overall resources.
(c) To co-ordinate the lending and investing policies of the different financial institutions in the country with a view to ensuring efficient use of the resources.
(d) To consider all other related matters.
The council ha done good works. It had assessed the demand for bank credit and laid down the credit priorities. It recommended the introduction of the lead bank scheme for mobilising rural savings and for meeting the credit requirements of rural areas effectively.
The Banking Laws (Amendement) Act of 1968 came into effect from 1st February, 1969. This Act introduced legislative measures for social control of banks. It introduced the following measures.
( a) It insisted on the reconstitution of the board of directors of the commercial banks. It laid down that not less than 51% of the total number of members of the board of directors of a bank should consist of persons who have specialised knowledge or practical experience in banking, economics, finance, general economy, co-operation, small-scale industries,law and accountancy. It also laid down that the chairman of a bank should be a professional banker,and not an industrialist.
(b) It placed restricitions on loans to directors. It laid down 'that no loan should be given to directors or concerns in which the directors are interested. Loans already given ot directors and their concerns should be recovered within 3 years.
(c) It provided for the Government's take-over of any bank, which contravenes any of the provisions of the Act, especially those relating to the provision of credit to priority sectors,with out resorting to any special legislation for the take-over.
The provisions of the Act were carried out by the banks sincerely.All banks reconstituted their board of directors. They modified their lending policies in favour of the priority sectors.
NATIONALISATION OF COMMERCIAL BANKS
Ever since independence, there was a demand for nationalisation of the commercial banks in India. It was demand for the following reasons:
(a) the resources of the commercial banks were misused. they were used mainly for the benefit of the directors, their relatives and friends and not for the society at large.
(b) private banks were responsible for the concentration of wealth and economic power in the hands of a few capitalists and industrialists.
(c) bank credit was given mainly to big industrialist and businessmen. It was not made available to small farmers, small industrialist , exporters and new entrepreneurs who had talent, but could not offer any acceptable security.
(d) Bank credit was given for anti-social activities like hording and speculation.
(e) Mobilisation of deposits in rural and semi-urban areas by the private commercial banks was unsatisfactory.
However, the Government felt, at that time, that nationalisation of banks was not needed for solving these problems, and mere social control of banks would be sufficient. therefore, it introduced the scheme of social control of banks on 14th December, 1967.
FIRST PHASE OF NATIONALISATION
No Doubt ,the scheme of social science control of banks worked very well.It had shown good results within a short period of six months.But the Government felt that it was inadequate for the purposes for which it was introduced. SO on 19th july,1969,it announced the nationalisation of the fourteen major Indian scheduled banks with deposits of Rs.50 crores or more,viz.,(1)The Central Bank of India Ltd.,(2)The Bank of India Ltd.,(3)The Punjab Ntional Bank Ltd.,(4)The Bank of Baroda Ltd.,(5)The United Commercial Bank Ltd.,(6)The Canara Bank Ltd.,(7)The United Bank of India Ltd.,(8)The Dena Bank Ltd.,(9)The Union Bank of India Ltd.,(10)The Allahabad Bank Ltd.,(11)The Syndicate Bank Ltd.,(12)The Indian Overseas Bank Ltd.,(13)The Indian Bank Ltd.,and(14)The Bank of Maharashtra Ltd.
An ordinance was promulgated (i.e.,issued) on 19th july,1969 nationalising the fourteen major Indian scheduled banks.The ordinance was replaced by the Banking Companies(Acquisition and Transfer of Undertakings) Act of 1969.
Immediately after the enactment of the Banking Companies(Acquision and Transfer of Undertakings Act of 1969 nationalising the fourteen major Indian Scheduled Banks,certain write petitions were filed in the supreme court challenging the validity of the Act.After a prolonged hearing of the case,the Supreme Court struck down the Act on 10th February,1970 on the grounds of hostile discrimination and unfair compensation. But four days after the Supreme Court's judgement,i.e.,on 14th February,1970,a new ordinance was promulgated to remove the loopholes in the earlier ordinance and to renationalise the fourteen major Indian commercial banks retrospective effect from 19th July,1970,The new ordinance was replaced by the Banking Companies(Acquisition and Transfer of Undertakings) Act of 1970.
SECOND PHASE OF NATIONALISATION
Again, on 15th April, 1980,six more banks, whose demand and time liabilities (i.e.,total deposits) exceeded Rs.100 crores were natinalised. Those six banks were (1)The Andhra Bank Ltd.,(2)The Corporation Bank Ltd.,(3)The New Bank of India Ltd.,(4)The Oriental Bank of Commerce Ltd.,(5)The Punjab and Sindh Bank Ltd.,and (6)The Vijaya Bank Ltd.,
No doubt, the scheme of nationalisation of banks worked satisfactorily,yet it has long way to go...
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