In one of her broadcasts to the nation, the then Prime Minister Mrs Indira Gandhi announced the objective of her government to nationalize banks. The paper named “stray thoughts on bank nationalization” was presented in the annual conference of All India Congress Meeting that catalysed the nationalization of commercial banks. This was a brave decision by the former prime minister to end the monopoly of the private banks and establish a strong and efficient banking system in the country.
She said “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.”
According to many economists, the nationalization of banks is an important economic resolution carried outby the government after 1947.
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Prior to the nationalization, private banks were controlled and managed by private owners. The government decided to end the private monopoly through the nationalization of banks and bring these financial institutions under government control.
The decision of nationalisation was purely taken in national interest. It was a step necessary to benefit the Indian economy and its people. Private banks were class-based and were benefitting only a small group of people. This leads to the concentration of power in hands of few people and if the necessary steps were not taken the economic disparity would become more prominent.
With the nationalization of the banks, the credit scenario in the country changed. Now the government can extend affordable credit to all types of borrowers. The banking business would contribute to economic development. The disparity between the rural and urban areas can be reduced by exposing people to better banking facilities. The nationalized banks would help the government to finance the growing financial requirements of the country.
To bring the banks under the sovereign authority the government passed a comprehensive act called the Banking Companies Act in 1970. Thisactsealed the fate of the banks and the takeover became absolute. But why were the banks nationalized? Take a look at the reasons for the nationalization of the banks.
Nationalization of banks has helped the government end the private monopoly over the banking sector. Some of the main benefits of nationalization of commercial banks are as follows:
On July 1969, India nationalized 14 private banks. This was a defining economic event that bought about social, political and financial reformation in the country. The banks were regulated by the central body RBI thus enabling the banks to make profits as well as extend easy credit at affordable interest rates. It leads to the establishment of a unique loan structure meant to benefit different section of people and different industries. Banking has become more viable than before. The increase of bank branches enabled better banking facilities throughout the country.
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