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Achievements of Nationalized Banks in India

IndianMoney.com Research Team | Posted On Tuesday, February 25,2020, 06:11 PM

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Achievements of Nationalized Banks in India

 

 

Banks in India were nationalized in the year 1969. Around 14 major banks were nationalized. Around 6 other private banks were additionally nationalized later in 1980. Today, these banks dominate the banking sector of the country with their widespread network.

Nationalization of banks has created confidence in the banking system. Small investors, farmers, industrialists and many more have benefitted from this. Banks became a more accessible medium to the under privileged sections of the society. Regional and sector based biasness was eliminated.

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In this article, let’s take a look at a few achievements of nationalized banks in India.

Achievements of Nationalized Banks in India

Lead Bank Scheme

It was introduced by the Reserve Bank of India in the year 1969. Under this scheme, commercial banks take up the role of a lead bank in specific areas. This was introduced for the purpose of enabling banking and credit facilities throughout the country. It was an area based approach.

See Also: A Brief History of Nationalization of Banks

This scheme ensures the following:

  • Each district in the country is allotted to nationalized banks, state bank group and private Indian banks.  
  • Expansion of bank branches within the district.
  • Diversified credit facilities.
  • Surveying the potential for bank development in the district.

Lead banks ensure all banking related facilities are available in areas assigned to them.

See Also: Public Sector Banks in India

Objectives of a lead bank are:

  • Open branches in all important areas within the district.
  • Extend credit facilities in the district for development.
  • Coordinate activities of all the financial institutions in the district.
  • Survey industrial and commercial units without bank accounts.
  • Recruit and train staff to provide financial advice to small farmers and borrowers.
  • Coordinate district activities with government and semi government agencies.

1. Branch Expansion

Branch expansion is significant for extending banking facilities in rural areas. After the nationalization of banks in 1969, bank branches have sprouted in every corner. The numbers will give a better explanation:

Pre-nationalization period (1951-1969): bank branches increased from 4,151 to 8,262.

Post nationalization period (1969-1987): bank branches increased from 8,262 to 53,840.

See Also: Major Problems Faced by India’s Nationalized Banks

Considering the entire India, banking coverage has increased from one office for 87,000 people in 1951 to one office for 65,000 people in 1969. This experienced a further hike in 2006 to one office for 15,000 people. According to 2016 RBI reports, India has over 1.3 Lakh bank branches. This is one of the highest numbers in the world.

2. Rural Area Coverage

The main objective of the branch expansion policy was to make sure of the availability of banking facilities in rural areas. Branch expansions in rural areas have witnessed a significant increase since the nationalization of banks. The number of rural bank branches in 1969 was 1,832. In 2014, this number had risen to 46,976.

3. Reduction of Regional Imbalances

Regional imbalances can deprive you of banking facilities in required areas. Since nationalization of banks, a systematic approach was in execution, to ensure the presence of banks and bank related facilities in deficit areas. It aims at providing a bank within 10 Km distance, for each village. One of the greatest achievements of nationalization of banks was that regional biasness got eliminated.

4. Bank Deposit Expansion

There has been a significant growth in the deposits of commercial banks since nationalization. During the pre nationalization period, bank deposits grew from 908 Crore rupees in 1951 to 4,646 Crore rupees in 1969. Post nationalization, this number increased to 1,07,345 Crore rupees in 1987. The deposits rose to 83,36,175 Crore rupees in 2014.

More deposits mean there is more money flowing in the system. Money becomes available to a large portion of the population in the form of credit and loans. This can promote growth in India.

See Also: Banking System in India: What You Need to Know?

5. Change in Composition of Deposits

Post nationalization of banks, there has been a difference in the proportion of term deposits and demand deposits. Term deposits or time deposits are deposits for a fixed period of pre-determined time. It can range from months to years. Whereas, demand deposits are those which offer greater access to your money. It can be withdrawn without a prior notice.

The proportion of time deposits has increased from 75% in 1969 to 90% in 2014. There is a clear shift in favor of time deposits during the post nationalization period.

6. Bank Credit Expansion

Bank credit is the total amount available to an individual for personal or commercial use from a banking institution. This has increased post nationalization from 3,599 crores in 1969 to 63,753 crores in the later period. This expansion is a symbol of growth across sectors. It also mean accessibility to bank facilities have increased.

See Also: How Will Mergers Affect Public Sector Banks?

Investment in Government Securities

Banks also encourage the purchase of government securities. Investment of banks in government and other approved securities have increased from 1,727 crore rupees in 1970 to 24,37,760 crores in 2014. This is significant growth. By investing in government securities, economic growth of the country as well as its residents would prosper. It imparts financial security to people who were otherwise unaware on such investments.

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