IndianMoney.com Research Team | Updated On Friday, November 16,2018, 04:40 PM
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Nationalization is an act of taking an industry or an asset into public ownership of a national government. Nationalization refers to private asset being transferred to the public sector to be operated by or owned by the state. Nationalization takes place when the government takes control over the assets of a corporation usually by acquiring the majority stake. Nationalization of banks has contributed in a big way to the economy.
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Nationalized Banks In India
Functions of nationalized banks:
Banks perform several important functions. The functions provide the base to the whole operation of the banking system. They are as follows:
Transfer Money from one branch to another
Collecting money from the bills of exchange.
Purchasing and selling shares and debentures.
Receiving periodic collection of salary, pension and dividend.
Acts as Trustee and executor
Collection of cheque ,dividends, interest
Accepts Payment of rent, insurance, premiums
Dealing in foreign exchange
Help to maintain the flow of money in an economy
It provides safety not only for money but also for wealth
Issues cheque and letter of credit
Gives Information relating to economic position
Provides Consultant services like Financial Advisor
List of Nationalized Banks in India and Their Head offices:
The list of nationalized banks is as follows:
Names of the nationalized banks
Bank of Baroda
Bank of India
Bank of Maharashtra
Central bank of India
Indian overseas bank
Oriental bank of commerce
Punjab and Sind bank
Punjab national bank
Union bank of India
United bank of India
Why were these banks nationalized?
Before nationalization, the majority of the banks were private banks. Private Banks were class based and there would be monopolies that would only benefit fewer people (richer people) in society. With the nationalization of the banks, the credit scenario changes benefitting all sections of society and contributes to overall prosperity. The Indian Government recognised the need to bring the banks under some form of government control to be able to finance India’s growing financial needs. In 1949 the RBI became the first bank to be nationalized.
Objectives of Nationalized Banks in India:
Some of the main objectives of nationalized banks are discussed below:
Social welfare: the banks were focused towards the development and expansion of small and medium industries and the agricultural sector. These banks provide the necessary funds for their expansion and growth.
Controlling private monopolies: before nationalization the banks were controlled and operated by corporate families. In order to ensure smooth supply of credit and cease private monopolies, the government took over the banks for the betterment of the nation.
Expansion of banking: these banks expanded the banking base to previously un-banked areas.
Reducing regional imbalance: the nationalized banks were introduced in areas where banking facilities were not available in order to reduce regional imbalances.
Developing banking habits: For the progress of the country and economic development, it is necessary to develop the banking habit among a large population.
Private sector lending: The agricultural sector was deprived of their due share in credit. This crisis leads them to borrow money from private lenders at very high interest rates. Nationalization was a must for making the funds available to that sector.
The disadvantages of nationalization of banks are as follows:
Political purpose rather than for Productive purpose: The government has acquired strength over the financial services and there is the danger of using the financial resources for political purposes rather than for productive purpose.
Scope for inefficiency: Some are of the opinion that after nationalization, banks will degenerate to the level of agricultural co-operatives, which are known for their inefficiency and corrupt practices.
Less attractive customer's service: Inefficiency, indecision, corruption, and lack of responsibility are the evils with which the government undertakings are suffering. A government bank may not care to attach importance to the customer service.
Branch expansion: To argue that nationalization will help to facilitate branch expansion in rural areas much more rapidly than the private banks cannot be supported by facts. Whether it’s a private bank or nationalized bank; it has to go by business principles and satisfy that the new branch is economically viable. In other words, branch expansion can be achieved by private banks as well, without nationalization.
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