Project On Nationalization of Banking in India

S.D.
T KALANI COLLEGE
UNIVERSITY OF MUMBAI
(2020-2021)
PROJECT BY:
MISHRA SHUBHAM KRISHNA
TYBBI
ROLL NO- 1128023
SEM- VI
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CERTIFICATE
S.D.T. KALANI COLLEGE OF
ARTS, SCIENCE & COMMERCE
This is to certify that Mr. MISHRA SHUBHAM KRISHNA, has worked and duly
completed his project work for the degree of bachelor in commerce (BBI) Sem-VI under the
faculty of commerce in the subject of “NATIONALISATION OF BANKINGS” and his-
project is entitled, “PROF. PREETI DUSEJA” under my supervision
PROJECT GUIDE EXTERNAL EXAMINER
PRINCIPAL
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DECLARATION
I am Mr. MISHRA SHUBHAM KRISHNA here by, declare that the work embodied in this
project titled “NATIONALISATION OF BANKINGS” Forms my own contribution to the
research work carried out under the guidance of PROF. PREETI DUSEJA is a result of my
own research work and project report has not been submitted to any other Institute/University
for the award or any other degree.
Wherever reference has been made to previous works of others, it has been clearly indicated
as such and included in the bibliography.
I, here by further declare that all information of his documents has been obtained and
presented with academic rules and ethical conduct.

ROLL NO: 1128023
TY.BBI
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ACKNOLEDGMENT
To list who all have helped me is difficult because they are so numerous and the depth is so
enormous. I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project. I take this opportunity to thank the University of
Mumbai for giving me chance to do this project. I would also like to express my sincere
gratitude towards my project guide PROF. PREETI DUSEJA whose guidance and care
made the project successful. I would like to thank my college library, for giving provided
various reference books relate to my project. Lastly, I would like to thank each person who
directly or indirectly helped me in the completion of the project who supported me
throughout my project.
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PROJECT TITLE
“NATIONALISATION OF BANKINGS”

ROLL NO: 1128023
TY.BBI
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INDEX
CHAPTER CHAPTER NAMES PAGE

NO NO
BASIC KNOWLADGE ABOUT

1 NATAIONALISATION OF BANKING 8-13
2 HISTORY OF NATIONALISATION BANKING 14-19
3 ROLE OF NATIONALISATION BANKING 20-26
4 OBJECTIVE AND FEATURES OF 27-33

NATIONALISATION BANKS
5 GROWTH OF NATIONALISATION BANKS 34-43
6 ADVANTAGES OF NATIONALISATION BANK 44-51
7 CHALLENGES ON NATIONALISATION BAKNS 52-56
8 CASE STUDY 57-60
9 CONCLUSION 61
10 REFRENCE/BIBLIOGRAPHY 62
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CHAPTER NO- 1
BASIC KNOWLADGE ABOUT NATAIONALISATION OF BANKING
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ABSTRACT
The economic prosperity of a country is greatly influenced by various factors like the
operational efficiency, productivity and financial performance of industrial sector, efficiency
and varieties of services in service sector. The real strength of economy lies on service sector
and banking sector in particular. The banking and finance sector has witnessed a major
setback across the globe in recent days in terms of their financial performance.
India, a fast growing economy is not an exception to the agony of recession. However, the
effective and timely prescriptions like Financial Stimulus Packages taken by Reserve Bank of
India and Ministry of Finance saved the Indian Economy and Banking sector from the
meltdown shock and repercussion. Due to these measures taken by RBI the Indian Banking
Companies have considerably performed well in the present meltdown scenario. It is also
evidenced that almost all the banking companies in India have positive figures in the fourth
quarter of financial year 2008-09. In this context an attempt was made to study the
performance of nationalized and private sector banks through the opinion survey of
customers of various banks to measure the impact and valence of economic meltdown in
Kanchipuram Town. A structured Interview Schedule was administered among Account
holders of the various banks during January to July 2009. Since the population size is large,
convenience sampling was adopted.
INTRODUCTION
Indian banking system, over the years has gone through various phases after establishment of
Reserve Bank of India in 1935 during the British rule, to function as Central Bank of the
country. Earlier to creation of RBI, the central bank functions were being looked after by the
Imperial Bank of India. With the 5-year plan having acquired an important place after the
independence, the Govt. felt that the private banks may not extend the kind of cooperation in
providing credit support, the economy may need. In 1954 the All India Rural Credit Survey
Committee submitted its report recommending creation of a strong, integrated, State-
sponsored, State-partnered commercial banking institution with an effective machinery of
branches spread all over the country. The recommendations of this committee led to
establishment of first Public Sector Bank in the name of State Bank of India on July 01, 1955
by acquiring the substantial part of share capital by RBI, of the then Imperial
Bank of India. Similarly during 1956-59, as a result of re-organisation of princely States, the
associate banks came into fold of public sector banking. Banking and financial services,
construction, health and air transport services are sectors where the policy regime is
moderately liberal. In the Banking and other financial services (except insurance) FDI is
permitted up to 49%. However foreign branches can operate only as licensed branches or
subsidiaries. Limitations are there with respect to number of annual branch licenses (12 per
year). Moreover voting rights of the foreign shareholders are restricted to 10%. At present
there are 18 branches operating in India. Now FDI has reached $1.25 billion in the year 2002.
The Indian Banking market has been opened fully in the year 2009. The foreign banks can
hold 74% of equity in their banks in India from 2009. Remaining 26% has to be offered to
the Indian General Public. The foreign banks can acquire the Indian private banks, which are
identified by the RBI from time to time as per the GATS guidelines. The present foreign
stack is 7% in total banking assets in India.
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NEED FOR THE STUDY
The entire world has seen the dramatic effects of meltdown of economy. For the meltdown
India is also not an exemption. In this context the expects say that the only sector which is not
affected by melt down is Banking sector The Expects further feel that the nationalized banks
are the organizations which are less affected compared to other sectors of the economy .In
fact almost all the nationalized banks have shown good performance in the 4th
quarter in this financial year (2008-2009).Therefore to study and explore this comment, the
study is under taken and the performance of nationalized banks are compared with private
sector banks based on customer opinion in Kanchipuram town. Customer satisfaction
represents a modern approach for quality in enterprises and organisations and serves the
development of a truly customer-focused management and culture. Measuring customer
satisfaction offers an immediate, meaningful and objective feedback about clients’
preferences and expectations. In this way, bank’s performance may be evaluated in relation to
a set of satisfaction dimensions that indicate the strong and the weak points of a
business organisation. This paper presents an original customer satisfaction survey in the
private bank sector.
BANK NATIONALISATION AND PUBLIC SECTOR BANKING
Organised banking in India is more than two centuries old. Till 1935 all the banks were in
private sector and were set up by individuals and/or industrial houses which collected
deposits from individuals and used them for their own purposes. In the absence of any
regulatory framework, these private owners of banks were at liberty to use the funds in any
manner, they deemed appropriate and resultantly, the bank failures were frequent.
Move towards State ownership of banks started with the nationalisation of RBI and passing
of Banking Companies Act 1949. On the recommendations of All India Rural Credit Survey
Committee, SBI Act was enacted in 1955 and Imperial Bank of India was transferred to SBI.
Similarly, the conversion of 8 State-owned banks (State Bank of Bikaner and State Bank of
Jaipur were two separate banks earlier and merged) into subsidiaries (now associates) of
SBI during 1959 took place. During 1968 the scheme of ‘social control’ was introduced,
which was closely followed by nationalisation of 14 major banks
in 1969 and another six in 1980. Keeping in view the objectives of nationalisation, PSBs
undertook expansion of reach and services. Resultantly the number of branches increased 7
fold (from 8321 to more than 60000 out of which 58% in rural areas) and no. of people
served per branch office came down from 65000 in 1969 to 10000. Much of this expansion
has taken place in rural and semi-urban areas. The expansion is significant in terms of
geographical distribution. States neglected by private banks before 1969 have a vast network
of public sector banks. The PSBs including RRBs, account for 93% of bank offices and 87%
of banking system deposits.
In the early 1990s, the then Narsimha Rao government embarked on a policy of
liberalization, licensing a small number of private banks. These came to be known as New
Generation tech-savvy banks, and included Global Trust Bank (the first of such new
generation banks to be set up), which later amalgamated with Oriental Bank of Commerce,
Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move, along with the
rapid growth in the economy of India, revitalized the banking sector in India, which has seen
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rapid growth with strong contribution from all the three sectors of banks, namely,
government banks, private banks and foreign banks. In March 2006, the Reserve Bank of
India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector
bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a
private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in
the private sector banks would need to be vetted by them.
Currently (2007), banking in India is generally fairly mature in terms of supply, product
range and reach-even though reach in rural India still remains a challenge for the private
sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are
considered to have clean, strong and transparent balance sheets relative to other banks in
comparable economies in its region. The Reserve Bank of India is an autonomous body,
with minimal pressure from the government. The stated policy of the Bank on the Indian
Rupee is to manage volatility but without any fixed exchange rate and this has mostly been
true.
OBJECTIVES OF THE STUDY
The study has the following objectives

1. To conduct a detailed comparative study on customer satisfaction with respect to public
and private sector banks in Kanchipuram town.
2. To identify the opinion of the respondents on the features of the bank and to rate the banks
by their services to customers.
3. To know the opinion of respondents on how they get the information from the bank and its
correctness.
4. To assess the feeling of the feeling of the respondents about the treatment and care been
given by the bank.
5. To understand the respondents’ viewpoint about ATM, Internet services and the charges
levied by the bank for various reasons.
6. To identify the opinion and confidence level of the respondents’ on the performance of the
bank.
7. To rank the various banks based on the opinions of the customers.
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Bank Nationalization in India
Indian Banking history can be traced to 19th century. During the colonial era many
Indian banks were founded either by the Presley States or by wealthy individuals.
The primary aim of most of the banks was to cater financial needs of trade and
industry in that locality. During this period the banking services became the privilege
of big business firms and wealthy individuals. Masses were denied easy credit and
banking services. Agriculture and rural small scale industries did not have access to
credit facilities and banking services. They depended on village money lenders and
other private financiers to fund their activities. These local financial prodders
exploited the rural population by charging enormous interest rates and harsh
repayment conditions.
Nationalization of banks in India by then Indian Prime Minister Indira Gandhi wrote a
new chapter in Indian Banking history. The nationalized banks in India were
compelled to focus on rural and agricultural sectors as a part of their social
responsibility. Their resources were utilized to empower farmers and agricultural
labourers in order to free them from the clutches of money lenders.
Nationalization of banks in India was done in two phases. The first phase of
nationalization started in 1955 when the erstwhile Imperial Bank of India became
State Bank of India with an Act of parliament. During 1959, seven subsidiaries were
nationalized and associated with State Bank of India one by one. This heralded a
new beginning in Indian banking system. The State Bank group became the largest
bank in India serving 90 million customers with a network of over 9000 branches in
nook and corners of the country
.
The second phase of nationalization started in 1969 with the nationalization of 14
major commercial banks in India. In 1980, 6 more commercial banks were
nationalized and became public sector banks. After this period the Public Sector
Undertaking banks expanded their reach and grew in leaps and bounds.
The nationalized banks in India expanded their branches and spread their activities
across the country. The PSU banks introduced new schemes and programs to cater
all sections of the society. Thus the nationalization of Banks in India helped the
masses to avail banking services at affordable cost.
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Banks Nationalization Chronology
• 1955 – State Bank of India nationalized.
• 1959 – 7 subsidiaries nationalized and associated with SBI.
1. State Bank of Bikaner and Jaipur

2. State Bank of Hyderabad
3. State Bank of Indore
4. State Bank of Mysore
5. State Bank of Patiala
6. State Bank of Saurashtra
7. State Bank of Travancore
• 1969 – 14 major commercial Banks nationalized on 19th July 1969.
1. Allahabad Bank
2. Bank of Baroda
3. Bank of India
4. Bank of Maharashtra
5. Canara Bank
6. Central Bank of India
7. Dena Bank
8. Indian Bank
9. Indian Overseas Bank
10. Punjab National Bank
11. Syndicate Bank
12. UCO Bank
13. Union Bank of India
14. United Bank of India
• 1980 – 6 more commercial Banks nationalized.
1. Andhra Bank
2. Corporation Bank
3. New Bank of India
4. Oriental Bank of Commerce
5. Punjab & Sindh Bank
6. Vijaya Bank
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CHAPTER NO- 2
HISTORY OF NATIONALISATION BANKING
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INTRODUCTION
Banking System In India

Banking has been a significant part of our lives for a very long time. And in recent times,
with the advancement of technology, there has been a revolution in the banking system. We
now live in an era where various banking facilities are just one click away, but this change
wasn’t sudden. The history of Banking in India has seen a lot of stages & has been
continuously evolving since then. The majority of the Indian population relies on banks for
the smooth functioning of their transactional activities. Banking is and will always be an
important part of our lives. If you are preparing for Banking & SSC Exams, then it is very
important to prepare well for the topic 'History of Banking in India' that might be asked in
the General Awareness Section of many competitive examinations such as SSC CGL.
History of Banking in India - Stages of Evolution
The banking sector has seen a lot of transition. Banks have been with us for a long period of time,
even before India got its independence, the banks existed. Lets have a look at the banking history
and its evolution.
The history of Banking can be mainly categorized into 3 stages –
1. Pre Independence Stage - Before 1947

2. II Phase - 1947 to 1991
3. III Phase - 1991 & beyond
History of Banking in Pre Independence Stage
1. The Pre Independence stage has seen some important events. This phase marked the
presence of more than 600 banks.
2. The Banking system in India began with the establishment of the Bank of Hindustan in
1770, but it ceased to operate by 1832.
3. The phase also witnessed the alliance of 3 major banks - Bank of Bengal, Bank of
Bombay & Bank of Madras. They were amalgamated and called Imperial Bank, which
was taken over by SBI in 1955.
4. A few of the banks were established in this period as listed below –
Bank Name Established in

Allahabad Bank 1865
Punjab National 1894
Bank
Bank of India 1906
Bank of Baroda 1908
Central Bank of 1911
India
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The History of Banking in India dates back before India got independence in 1947 and is a
key topic in
terms of questions asked in various Government exams. In this article, we shall discuss in
detail the
evolution of the banking sector in India.
The banking sector development can be divided into three phases:
Phase I: The Early Phase which lasted from 1770 to 1969

Phase II: The Nationalisation Phase which lasted from 1969 to 1991
Phase III: The Liberalisation or the Banking Sector Reforms Phase which began in 1991 and
continues
to flourish till date

Pre Independence Period (1786-1947)
The first bank of India was the “ Bank of Hindustan ”, established in 1770 and located in the
then, Indian capital, Calcutta. However, this bank failed to work and ceased operations in
1832. During the Pre Independence period over 600 banks had been registered in the country
but only a few managed to survive.
Following the path of Bank of Hindustan, various other banks were established in India. They
were:
● The General Bank of India (1786-1791)

● Oudh Commercial Bank (1881-1958)
● Bank of Bengal (1809)
● Bank of Bombay (1840)
● Bank of Madras (1843)
During the British rule in India, The East India Company had established three banks: Bank
of Bengal, Bank of Bombay and Bank of Madras and called them the Presidential Banks.
These three banks were later merged into one single bank in 1921 which was called the
“Imperial Bank of India. ” The Imperial Bank of India was later Nationalized in 1955 and
was named The State Bank of India, which is currently the largest Public sector Bank.
Given below is a list of other banks which were established during the Pre-Independence
period:
Pre-Indolence Banks in India
Bank Name Year of Establishment
Allahabad Bank 1865
Punjab National Bank 1894
Bank of India 1906
Central Bank of India 1911
Canara Bank 1906
Bank of Baroda 1908
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If we talk of the reasons as to why many major banks failed to survive during the during the
pre independence period, following conclusions can be drawn:
● Indian account holders had become fraud prone

● Lack of machines and technology
● Human errors & time consuming
● Less facilities
● Lack of proper management skills
Following the Pre-Independence period was the post-independence period which observed
some major changes in the banking industry scenario and has till date developed a lot.
Post-Independence Period (1947-1991) At the time, when India got independence, all the
major banks of the country were led privately which was a cause of concern as the people
belonging to rural areas were still dependent on money lenders for financial assistance.
With an aim to solve this problem, the then Government decided to nationalise the Banks.
These banks were Nationalized under the Banking Regulation Act, 1949 and the Reserve
Bank of India was Nationalized in 1949. Candidates can check the list of Banking sector
reforms and Acts at the linked article. Following it was the formation of State Bank of India
in 1955 and other 14 banks were Nationalized between the time duration of 1969 to 1991.
These were the banks whose national deposits were more than 50 crores.
Given below is the list of these 14 Banks Nationalized in 1969:
1. Allahabad Bank
2. Bank of India
3. Bank of Baroda
4. Bank of Maharashtra
5. Central Bank of India
6. Canara Bank
7. Dena Bank
8. Indian Overseas Bank
9. Indian Bank
10. Punjab National Bank
11. Syndicate Bank
12. Union Bank of India
13. United Bank
14. UCO Bank
In the year 1980, another 6 banks were Nationalized taking the number to 20 banks. These
banks included:
1. Andhra Bank
2. Corporation Bank
3. New Bank of India
4. Oriental Bank of Comm.
5. Punjab & Sind Bank
6. Vijaya Bank
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Apart from the above mentioned 20 banks, there were seven subsidiaries of SBI which were
Nationalized in 1959:
1. State Bank of Patiala

2. State Bank of Hyderabad
3. State Bank of Bikaner & Jaipur
4. State Bank of Mysore
5. State Bank of Travancore
6. State Bank of Saurashtra
7. State Bank of Indore
All these banks were later merged with the State Bank of India in 2017, except for the State
Bank of
Saurashtra, which was merged in 2008 and State Bank of Indore, which was merged in 2010.
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Liberalisation Period (1991-Till Date)
Once the banks were established in the country, regular monitoring and regulations need to
be followed to continue the profits provided by the banking sector. The last phase or the
ongoing phase of the banking sector development plays a very important role.
To provide stability and profitability to the Nationalized Public sector Banks, the
Government decided to set up a committee under the leadership of Shri. M Narasimham to
manage the various reforms in the Indian banking industry.
The biggest development was the introduction of Private sector banks in India. RBI gave
license to 10.
Private sector banks to establish themselves in the country. These banks included:
1. Global Trust Bank
2. ICICI Bank
3. HDFC Bank
4. Axis Bank
5. Bank of Punjab
6. IndusInd Bank
7. Centurion Bank
8. IDBI Bank
9. Times Bank
10. Development Credit Bank
The other measures taken include:
● Setting up of branches of the various Foreign Banks in India
● No more nationalisation of Banks could be done
● The committee announced that RBI and Government would treat both public and private
sector
banks equally
● Any Foreign Bank could start joint ventures with Indian Banks
● Payments banks were introduced with the development in the field of banking and
technology
● Small Finance Banks were allowed to set their branches across India
● A major part of Indian banking moved online with internet banking and apps available for
fund transfer Thus, the history of banking in India shows that with time and the needs of
people, major developments
have been done in the banking sector with an aim to prosper it.
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CHAPTER NO- 3
ROLE OF NATIONALIZED BANKING
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Introduction:
Finance is the lifeblood of an industrial and commercial undertaking and agriculture as well.
Money or credit or finance is the lubricant that facilitates the operations it is also needed to
finance to the Non-farming activities such as that promotes the Rural Development. Finance
of Agriculture means the use of capital to meet the financial requirement of the people
engaged in various agricultural and other activities. Thus, Agricultural Finance refers to the
process of arranging finance for agricultural activities. crop loan minor irrigation, land
development, farm mechanization, plantation, and horticulture, dairy, poultry, sheep and goat
rearing, fisheries, forestry etc, and other activities are Non-farm sector activities. viz.,
handloom, power loom, tiny sector, rural artisans, small-scale industries, etc. and non-priority
sector, state and central Government sponsored programs.
The rural development for a quite long time was equated with just agricultural growth. The
rationale behind this was that benefits of growth would trickle down to the poorer
communities. However, the expected phenomenon did hardly actually take place. The
new technology, which was introduced in the mid sixties, although, was independent of farm
size, could largely accrue benefits to larger number farmers who had access to resources. The
resources bias in favor of the big farmers is one of the main factors leading to the widening of
existing inequalities. The Government is view that the rural development in widest sphere
besides crop animal husbandry and all the allied activities. Here, the word-allied activities
encompasses not only agricultural but also all types of development activities intended to
improve the quality of life in the countries.
DATA ANALYSIS OF NATAIONALISATION BANKS IN THE DEVELOPMENT

ON AGRICULTURE
Table No. 1:
Nationalized banks and branches in Bagalkot
Sl No. Name of banks No. of branches
1 Syndicate Bank 23
2 Vijaya Bank 13
3 Corporation Bank 12
4 Canara Bank 10
5 Union Bank of India 8
6 Central Bank of India 4
7 Dena bank 1
8 Bank of Maharashtra 3
9 Bank of Baroda 3
10 Bank of India 6
11 Indian Bank 3
12 Allahabad bank 1
13 Oriental Bank of Commerce 1
14 Andra bank 1
15 Indian overseas bank 3
16 Punjab national bank 1
17 United bank of india 1
Tota 94
l
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Note: Table no. 1 show that Nationalized banks and branches running in Bagalkot district.
Out of 33 banks with 285 branches in the district. Of these 17 public sector banks namely,
maximum is Syndicate Bank (13 branches). Second highest is Vijaya Bank(13 branches) .
Next followed branches are Corporation Bank (12 branches) , Canara Bank (10 branches)
,Union Bank of India ( 8 branches),Central Bank of India (4 branches), Dena Bank ( 1
branches), Bank of Maharashtra ( 3 branches), Bank of Baroda ( 3 branches), Bank of India
( 6 branches ), Indian Bank ( 3 branches ) , Allahabad bank ( 1 branch) and OBC ( 1 branch) .
Table No. 2:
Deposit in nationalized bank wise
[Amount in Lacks]
Sl No. Name of banks Years
December December December December December
2013 2014 2015 2016 2017
1 Syndicate Bank 45567 49689 58308 71716 73391
2 Vijaya Bank 18395 22635 29040 29617 27283
3 Corporation Bank 31262 33635 39621 53574 52189
4 Canara Bank 15578 18637 20690 25245 27782
5 Union Bank of India 10925 12438 12945 28145 19346
6 Central Bank of India 2561 2919 3200 4188 3812
7 Dena bank --- 3722 101 235 130
8 Bank of Maharashtra 2315 2622 3350 4053 3914
9 Bank of Baroda 1922 2358 2781 2970 4420
10 Bank of India 3145 3145 10343 10702 9497
11 Indian Bank 1252 1482 1718 2528 2375
12 Allahabad bank 1606 1633 1563 1768 2206
13 Oriental Bank of 444 289 1093 1279 1730
Commerce
14 Andra Bank --- --- --- --- 110
15 Indian Overseas Bank 6980 4216 4355 4361 1513
16 Punjab National Bank --- 164 586 701 749
17 United Bank of India --- --- 12945 28145 200
Source: Annual Credit Plan of Bagalkot district 2013-14 to 2018-19
Note: Table no. 2 presented that deposited in nationalized bank at Bagalkot district .Here
with data analysis is five years deposit in 17 Nationalized banks. The maximum deposit in
syndicate bank and also increase year by year. Some nationalized bank opened after 2014-15
i.e Andra Bank and United Bank of India. They also slow growth with help of deposit year
by year
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Table No. 3:
Advance in nationalized bank wise
AMMOUNT IN LAKH

2013 2014 2015 2016 2017
1 Syndicate Bank 36917 52787 65269 80830 90252
2 Vijaya Bank 15016 20995 22598 32483 35137
4 Canara Bank 14695 18703 23973 24266 29581
7 Dena bank --- 6644 454 559 420
9 Bank of Baroda 2892 3563 4584 4608 7759
10 Bank of India 12041 32311 26052 47070 72973
11 Indian Bank 3525 4078 3861 5124 5604
12 Allahabad bank 1865 1717 1542 1394 1150
13 Oriental Bank of 131 264 324 415 611
Commerce
14 Andra bank --- --- --- --- 107
15 Indian Overseas Bank 15908 21261 19837 12241 11521
16 Punjab National Bank 6345 5 658 940 927
17 United Bank of India --- --- --- --- 300
[Source: Annual Credit Plan of Bagalkot district 2013-14 to 2018-19]
Note: Above table no. 3 show that advance of nationalized bank at Bagalkot district .Here also with data
analysis is five years deposit in 17 Nationalized banks. The same result in here maximum advance in
syndicate bank and also increase year by year. Some nationalized bank opened after 2014-15 i.e Andra Bank
and United Bank of India. They also slow growth with available of loan year by year.
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Table No. 4:
Growth of Deposit in nationalized bank wise
IN PERSENTAGE
2013 2014 2015 2016 2017
1 Syndicate Bank 9 9.04 17.34 22.99 2.3
2 Vijaya Bank 12 23.04 28.29 1.98 -7.9
3 Corporation Bank -2 7.59 17.79 35.21 -2.6
4 Canara Bank 16 19.63 11.01 22.01 10.0
5 Union Bank of India -35 13.84 4.07 117.42 -31.3
6 Central Bank of India -34 13.97 9.62 30.87 -9.0
7 Dena bank --- ---- -97.29 132.67 -44.7
8 Bank of Maharashtra 16 13.26 27.76 20.98 -3.4
9 Bank of Baroda -12 22.68 17.93 6.79 48.8
10 Bank of India 15 --- 228.87 3.47 -11.3
11 Indian Bank 1059 18.37 15.92 47.14 -6.1
12 Allahabad bank -55 1.68 -4.28 13.11 24.8
13 Oriental Bank of --- -34.90 278.2 17.01 35.3
Commerce
14 Andra bank --- --- --- --- 114.0
15 Indian Overseas Bank 43 -39.59 3.29 0.13 -65.3
16 Punjab National Bank --- --- --- 19.62 6.8
17 United Bank of India --- --- --- ---- 0.0
Note: In the year 2017 highest growth of Bank of Baroda and second highest growth of
nationalized bank is Oriental Bank of Commerce. Still not growth of deposit by United Bank
of India. Because, this bank opened recent year.
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Table No. 5:
Growth of Advance in nationalized

bank wise [In percentage]
2013 2014 2015 2016 2017
1 Syndicate Bank 15 42.98 23.64 23.84 11.7
2 Vijaya Bank 53 39.81 7.63 43.74 8.2
3 Corporation Bank 51 9.89 8.51 -0.08 5.7
4 Canara Bank 19 27.27 28.17 1.22 21.9
5 Union Bank of India 22 6.29 2.86 49.27 90.7
6 Central Bank of India 27 49.44 -3.82 13.48 8.1
7 Dena bank --- --- -93.16 23.12 -24.9
8 Bank of Maharashtra 188 16.01 21.31 6.40 2.9
9 Bank of Baroda 93 23.20 28.65 0.52 68.4
10 Bank of India 13 168.34 -19.37 80.67 55.0
11 Indian Bank 21 15.68 -5.32 32.71 9.4
12 Allahabad bank 100 -7.93 -10.19 -9.59 -17.5
13 Oriental Bank of --- 101.53 22.72 28.08 47.2
Commerce
14 Andra bank --- --- --- --- 34.0
15 Indian Overseas Bank 34 33.65 -6.69 -38.29 -5.9
16 Punjab National Bank --- -99.92 13060 42.85 -1.4
17 United Bank of India --- --- --- --- 0.0

Note: Above table, no. 5 presented that growth of advance in Bagalkot district. Maximum growth of advance
by Union Bank of India. Still not growth of advance by United Bank of India. Because, this bank opened
recent year.
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Table No. 6:
Agriculture Sector in Nationalized banks
Amount In Lakhs
Sl No. Name of banks Year
2013 2014 2015 2016 2017
1 Syndicate Bank 23876 38545 49773 63983 71804
2 Vijaya Bank 13122 19200 20603 18966 24850
4 Canara Bank 10778 12860 15462 14270 17552
7 Dena bank --- --- 273 378 161
9 Bank of Baroda 2593 3262 4183 2865 5681
10 Bank of India 8135 28405 23992 35976 68709
11 Indian Bank 2400 3710 3467 4730 4616
12 Allahabad bank 747 810 147 146 145
13 Oriental Bank of 37 90 118 209 224
Commerce
14 Andra bank --- --- --- --- ---
15 Indian overseas bank 2584 11373 11171 3575 4183
16 Punjab national bank --- --- 606 514 248
17 United bank of india --- --- --- --- 15
Note: Nationalized bank help to agriculture sector in Bagalkot district shown in the above
table no. 6. Out of syndicate bank is maximum contribution given to agriculture sector. But
some nationalized bank they also help in little contribution to agriculture in Bagalkot district.
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CHAPTER NO- 4
OBJECTIVE AND FUNCTION OF NATIONALIZED BANKS
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INTRODUCTION:
“In the Present Form, Bank is considered to be just like4M” “Money to Make More Money”
The Banking system originated in India. It was started by Jewellers and goldsmiths
authoritative writers that as early as the Vedic period, say between 2000 and 1400 B.C
records of taking and giving of credits are to be found. During Ramayana and Mahabharata
era, banking had become fully fledged business activity and during the Manu
smriti period which followed the Vedic period and the epic age, the business banking was
carried out by the members of Vishay community. Even during English period the
English traders, who came to India in the 16 th century, established some contracts with the
indigenous bankers by borrowing funds from them. it was in 1672 that this development
of English banking received a rude setback. In simple words, bank refers to an institution that
deals in money. This institution accepts deposits from the people and gives loans to those
who are in need. Besides dealing in money, bank these days perform various other functions,
such as credit creation, agency job and general service. Bank, therefore is such an institution
which accepts deposits from the people, gives loans, creates credit and undertakes agency
work.
What is Nationalization?
Nationalization is the process of taking a private industry or private assets into public
ownership by a national government or state. Nationalization usually refers to private
assets, but may also mean assets owned by lower levels of government, such as
municipalities, being transferred to be the state. The opposite of nationalization is usually
privatization or de-nationalization, but may also be municipalisation. Industries that are
usually subject to nationalization include transport, communications, energy, banking
and natural resources.
28 | P a g e
OBJECTIVES:
1. Social Welfare:
in order to achieve the objectives of economic and social welfare, it was essential that the
ownership and control of country's strategic sectors .should be in the hands of the state. As
the financial institution like banks are the most important levers of the attainment of social
objectives, the nationalization of banks was considered as significant step.
2. Controlling Private Monopolies:

Prior to nationalization many banks were controlled by private business houses and corporate
families. It was necessary to check these monopolies in order to ensure a smooth supply of
credit to socially desirable sections.
3. To Curb the Evil of Inter-locking of Directorates:

As the directors of the banks were connected with one or the other industrial groups the banks
under their control used to make unsecured advances to them. Loans were sometimes given
to even extremely weak financial concerns if the directors had their interest in them; likewise
resources of the banks were utilized by the directors to promote their personal interest. All
these meant misuse and misdirection of the saving of the community.
4. Allocation of resources in Accordance with Plan Priorities:

It was found that many a times bank advances did not confirm to the priorities laid down in
our five year plans. While liberal advances were made to low priority industries the credit
need of high priorities were practically starved. This resulted in the distortion of the pattern of
investment. In other words, bank had failed to be guided by the positive social objectives of
our planning process. It was argued that the private control of commercial
banks in a planned economy was anachronism which had to be an obstacle to the
achievement of plan objectives.
5. Priority Sector Lending: In Nationalization, the agriculture sector and its allied activities
were the largest contributor to the national income. Thus these were labeled as the priority
sectors. But unfortunately they were deprived of their due share in the credit. Nationalization
was urgently needed for catering funds to them.
6. Reducing Regional Imbalance:

In a country like Nationalization where we have an urban-rural divide; it was necessary for
banks to go in the rural areas where the banking facilities were not available. In order to
reduce this regional imbalance nationalization was justified.
7. To prevent the misuse of the Funds: t was also pointed out that in many cases, bank
credit instead of being used for genuine productive purpose was diverted to hoarding,
profiteering, speculation and other anti-social activities. This created artificial scarcity of
goods and commodities in the economy. Bank Nationalization was sought to prevent the
misuse of bank funds.
8. To reduce monopoly practices: Initially, a few leading industrial and "business houses

had close association with commercial banks. They exploited the bank resources in such a
29 | P a g e
way that the new business units cannot enter in any line of business in competition with these
business houses. Nationalisation of banks, thus, prevents the spread of the monopoly
enterprise.
9. Social control was not adequate: The 'social control' measures of the government did not
work well. Some banks did not follow the regulations given under social control. Thus, the
nationalisation was necessitated by the failure of social control.
10. To reduce misuse of savings of general public: Banks collect savings from the general
public. If it is in the hand of private sector, the national interests may be neglected, besides, in
Five-Year Plans, the government gives priority to some specified sectors like agriculture,
small-industries etc. Thus, nationalisation of banks ensures the availability of resources to the
plan-priority sectors.
11. Greater mobilisation of deposits: The public sector banks open branches in rural areas
where the private sector has failed. Because of such rapid branch expansion there is possi-
bility to mobilise rural savings
12. Advance loan to agriculture sector: If banks fail to assist the agriculture in many ways,
agriculture cannot prosper, that too, a country like India where more than 70% of the
population depends upon agriculture. Thus, for providing increased finance to agriculture
banks have to be Nationalized.
13. Balanced Regional development: In a country, certain areas remained backward for lack
of financial resource and credit facilities. Private Banks neglected the backward areas
because of poor business potential and profit opportunities. Nationalisation helps to provide
bank finance in such a way as to achieve balanced inter-regional development and remove
regional disparities.
14. Greater control by the Reserve Bank: In a developing country like India there is need
for exercising strict control over credit created by banks. If banks are under the control of the
Govt., it becomes easy for the Central Bank to bring about co-ordinated credit control. This
necessitated the nationalisation of banks.
15. Greater Stability of banking structure: Nationalized banks are sure to command more
confidence with the customers about the safety of their deposits. Besides this, the planned
development of Nationalized banks will impart greater stability for the banking structure.
Arguments in favour and against nationalisation of banks.
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FUNCTION:
TRADITIONAL FUNCTION / CORE FUNCTION :
Basic or Traditional functions of a bank are very important in nature. These functions provide
base of the whole operation of the bank. The basic functions of a bank are as under:
Accepting the Deposit: A bank accepts deposit from the public. People can deposit their
cash balance either of the following accounts as per their convenience. The deposit can be
accepted in the following manner
Fixed deposit: Cash is deposited in the account for the fixed period. The depositor gets
receipts for the amount deposited. it is called fixed deposit receipt. Fixed deposits
refer to those deposits, in which the amount is deposited with the bank for a fixed period of
time.
Current Deposit: A depositor can deposit his funds any times and withdraw the same
amount at any time he wishes. The business man mostly preferred to open this type of
account. No charge of interest is paid. In fact, there are service charges. The depositor can get
the benefit of overdraft facility.
Saving Deposit: The main objective Of saving deposit is to mobilize small savings in the
form of deposits. This account encourages and motivates to small businessmen and small
saving person like tea stall etc. This account is suitable for salary and wage earners. In this
type of account charges of interest is very low. This account can be
opened in single name or in joint names. Other deposit: There may be other deposit to saving
their fruits of money like deposit in Home Safe Saving Account, Recurring Deposit Account
etc.
Advancing Loan: Another primary function of the commercial bank is to advancing

the loans. A certain part of the cash received by the bank as deposits is kept in the reserved
and rest is given as loan. Banks generally give following types of loans
and advances:
Cash Credit: The word cash credit means to give cash on credit. It can be given to current
account holders as well as to others who do not have an account with bank. In this type of
credit scheme, banks advance loans to its customers on the basis of bonds, inventories and
other approved securities. Under this scheme, banks enter into an agreement with its
customers to which money can be withdrawn many times during a year. Under this set up
banks open accounts of their customers and deposit the loan money. With this type of loan,
credit is created.
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Overdraft : Overdraft is a short-term loan granted by commercial banks to their account
holders. Under this type of loan, the customers are allowed to draw more than what they have
in their current account up to a certain limit. The excess amount overdrawn is called
overdraft.
Loans : Loan is a basic need for all businessman and organization. Business cannot set or
start without taking loan. So Commercial banks grant loans for short and medium-term to
individuals and traders against the security of movable and immovable property. The amount
of loan is credited to the borrower’s account. Interest is charged on the entire loan
sanctioned. Loans are normally secured against tangible assets ( which can be seen and touch
like land & building of the company.
Discounting Bill: Discounting the bills of exchange means that facility is given to hold who
can get the bill discounted with bank before the maturity. Bill discounted is also considered
as a highly earning liquid assets and is included among the
“money market Assets” Banks provide short term lean to the businessmen by discounting
bills of exchange. The payment made by the bank to the holder of bill of exchange
before its maturity is the amount of loan. The discount charged is the earning of the bank.
• HOUSING FINANCE
• EDUCATIONAL LOAN
• LOANS AGAINT SHARES
• LOANS AGAINST SAVING CERTIFICATE
• CONSUMER LOANS
MORDEN FUNCTION
Modern Function It is also important function of the bank and this function consists two parts
like Agency function & other service utilization function
Agency function:
The bank is in unknown name as a agent for its customers. The bank performs number of
agency functions which
includes.
1. Money Transfer from one branch to another from one place to another.
2. Bank also collects money of the bills of exchange.
3. Giving clearly instructions of the client for periodic payments
4. Purchase and sell the shares and debentures.
5. Receiving periodic collection of salary, pension & dividend.
6. Trustee and executor
7. Letter of references
8. Collection of cheque ,dividends, interest
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9. Payment of rant, insurance, premiums
10. Dealing in foreign exchange
11. Act as correspondent
12. Preparation of income –tax return.
Other services / functions:
In the other services its included general utility function and development function
1. It provides safety not only for money but also for wealth.
2. It also mains arrangement for the traveller for cheque and letter of credit.
3. Information relating to economic position
4. Consultant service also provided like Financial Advisor
5. Correct and right information given to Public
6. Accepting of Bills
7. Security of Loans
8. Personal Credit
9. Management of Public Debt
10. Share Market Function
11. Management of foreign exchange.
12. Creating money
13. Electronic Banking
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CHAPTER NO- 5
GROWTH OF NATIONALISATION BANKS
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1. Introduction:
The banking system is central to a nation’s economy. Banks are special as they not
only accept and deploy large amounts of uncollateralized public funds in a fiduciary capacity,
but also leverage such funds through credit creation. India has a long history of both public
and private banking. Banking in India originated in the last decades of the 18th century. The
first banks were The General Bank of India, which started in 1786, and Bank of Hindustan,
which started in 1790; both are now defunct. The oldest bank in existence in India is the State
Bank of India, which originated from the Bank of Calcutta in June 1806, which almost
immediately became the Bank of Bengal. This was one of the three Presidency Banks, the
other two being the Bank of Bombay and the Bank of Madras, all three of which were
established under Charters from the British East India Company. For many years the
Presidency Banks acted as quasi-central banks, as did their successors. The three banks
merged in 1921 to form the Imperial Bank of India, which, upon India's independence,
became the State Bank of India in 1955.
Following independence, the RBI was given broad regulatory authority over
commercial banks in India. Despite the provisions, control and regulations of Reserve Bank
of India, banks in India except the State Bank of India or SBI, continued to be owned and
operated by private persons. By the 1960s, the Indian banking industry had become an
important tool to facilitate the development of the Indian economy. At the same time, it had
emerged as a large employer, and a debate had ensued about the nationalization of the
banking industry. Indira Gandhi, then Prime Minister of India, expressed the intention of the
Government of India in the annual conference of the All India Congress Meeting in a paper
entitled "Stray thoughts on Bank Nationalisation." The meeting received the paper with
enthusiasm.
2. Recent Technological and Other Developments in Banking Sector:

India's economic development and financial sector liberalization have led to a
transformation of the Indian banking sector over the past two decades. Asset quality and
profitability have improved significantly and the system has become more commercially
oriented. Indian banks were not much impacted by the financial crisis, helped by their relative
isolation and some counter-cyclical measures implemented by the Reserve Bank of India in
the mid-2000s, but asset quality deterioration led to some proactive loan restructuring. Over
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the past years Indian banks have encountered more headwinds as high inflation led to
tightening monetary policy, putting pressure on borrowers, especially in weaker sectors.
Funding and liquidity are relatively strong features of the Indian banking system as the
loans/deposits ratio is under 80 percent and the banks are required to hold large amounts of
Indian government bonds. Their access to off-shore funding is constrained by India's just
investment grade sovereign rating. Capital is also adequate in aggregate but some banks,
including large public sector banks, are in need of core capital.
Developments in the field of information technology (IT) strongly support the growth
and inclusiveness of the banking sector thereby facilitating inclusive economic growth. IT not
only enhances the competitive efficiency of the banking sector by strengthening back-end
administrative processes, it also improves the front-end operations and helps in bringing
down the transaction costs for the customers. It has the potential of furthering financial
inclusion by making small ticket retail transactions cheaper, easier and faster for the banking
sector as well as for the small customers. The Reserve Bank has thus been actively involved
in harnessing technology for the development of the Indian banking sector over the years.
Information technology revolution in the Indian economy has made steady inroads into the
banking institutions and has brought about a significant change in many aspects in the form
of computerization of transactions and new delivery channels such as Internet Banking,
Phone Banking, ATMs, EFT, ECS and EDI etc.. With migration of traditional paper-based
funds movements to quicker and more efficient electronic mode, funds transfers have become
easy and efficient to perform.
2.1 Bank Computerization:

The most fundamental way in which technology has changed the face of the Indian
banking sector has been through computerization. Entry of new private sector banks and
foreign banks offering most modern technology banking has forced public sector banks
(PSBs) to address computerization problems more seriously in recent years. The pace of
computerization has remained slow even though opposition from staff unions has softened.
The Central Vigilance Commission wants 100 percent computerization in Indian banks to
check frauds, delays, etc. The general perception is that in recent years, the prime focus of
bank computerization has been less on the number of branches computerized but more on
better connectivity, say, between the head office and regional offices of a bank with select
branches. These are usually banks that handle large corporate borrowing accounts on one side
36 | P a g e
and those that are in high deposit zones, on the other. While the private sector banks have
been upgrading technology simultaneously with branch expansion, many of the top PSBs
have completed automating their branches in the urban areas. The next step to total branch
automation is networking of these branches.
PSBs need to frame a strategy to choose the branches that have to be included in their
networking scheme. Since it would be a daunting task for them to connect all the 64,000
branches spread across the country, as a first step, they are following the 80-20 thumb rule. It
assumes that 80 percent of bank’s business is carried out by only 20 percent of its branches. It
is the branches with substantial business, most of which lie in the urban areas, that are
initially targeted for interconnection. A major problem PSBs have to face, once IT
implementation reaches its optimum level, is staff retention. While the private sector banks
have been recruiting trained and experienced IT professionals, it may not be possible for
PSBs to do likewise. They will have to train their existing staff to function effectively in the
new environment. And once the requisite skills are acquired by employees, they may have
trouble retaining staff. PSBs can only allocate limited capital resources to computerization.
They will have to choose between high cost of computerization at metro and urban centres
and low cost computerization at rural, semi-urban branches. Also, they will have to factor in
returns on IT assets, and growth and productivity improvements.
Newly opened private sector banks, foreign banks, and a few other Indian banks have
started Electronic Money activities, which open up business opportunities but carry risks that
need to be recognized and managed prudently. The Basel Committee on Banking Supervision
has raised issues of critical importance to banking authorities in this regard. There is no
evidence that these aspects are being looked into in India, yet there is a need for auditing
firms to be aware of this issue. Despite recapitalization, the overall performance of PSBs
continues to lag behind those of private sector and foreign banks. Questions of ownership,
management, and governance are central to this issue. Under public ownership, it is almost
impossible to draw a distinction between ownership responsibility and managerial duty. For
this reason, Government-owned banks cannot insulate themselves from interference.
Inevitably, some PSBs are overregulated and over administered. A central concern is that
banking operation flexibility, which is essential for responding to changing conditions, is
difficult to implement. Under public control, the efficiency objective in terms of cost,
profitability, and market share is subordinated to the vaguely defined public interest
37 | P a g e
objective. Moreover, it is not only difficult to inject competition between PSBs since they
have a common ownership, but government-imposed constraints have also meant that they
have not been able to effectively compete with private sector banks. India still has to find a
middle path of balancing divergent expectations of socio-economic benefits while promoting
competitive capitalism. Political sensitivities can make privatization difficult but the
government aims to bring down its holdings to 51 percent. When that happens, a great stride
will be completed. In 1998, announcements have been made on corporatization of IDBI and
reduced government holdings in Bank of Baroda, Bank of India, Corporation Bank, Dena
Bank, IDBI, Oriental Bank of Commerce, and SBI. Of the total number of public sector bank
branches, 97.8 per cent were fully computerized at end-March 2010. The cumulative
expenditure on ‘computerization and development of communication networks’ by public
sector banks from September 1999 to March 2010 aggregated to `22,052 crore. On an annual
basis, the expenditure on ‘computerization and development of communication networks’
registered a growth of 23.2 per cent in 2009-10.
2.2 Core Banking Solutions (CBS):

A technological development closely related to computerization in bank branches is
the adoption of the Core Banking Solutions. Core banking is a general term used to describe
the services provided by a group of networking bank branches. Core banking consists of a
networking process by which the servers of different branches of a bank are joined to a
common server and henceforth an account holder may access, deposit, and withdraw money
from his/her account from any of the branches of the bank. Bank customers may access their
funds and other simple transactions from any of the member branch offices. Core banking
systems are basically the heart of all systems running in a bank and it forms the core of the
bank's IT platform. Amongst other functionalities, it provides the customer information
management, central accounting and the transaction-processing functions, which by far are
the most fundamental processes in a bank. Core banking solutions are banking applications
on a platform enabling a phased, strategic approach that is intended to allow banks to
improve operations, reduce costs, and be prepared for growth. Implementing a modular,
component-based enterprise solution facilitates integration with a bank's existing
technologies. An overall service-oriented-architecture (SOA) helps banks reduce the risk that
can result from manual data entry and out-of-date information, increases management
38 | P a g e
information and review, and avoids the potential disruption to business caused by replacing
entire systems.
With the advancement in technology and with the passage of time, core systems now-
days tend to cover more and more functionality giving the bank an integrated solution for
most of its operations in different business lines. Alongside, it also provides a central
operational database of customers' assets and liabilities giving facility to generate a 360
degree view of the customer’s relationship with the bank, which is fundamental for the
customer relationship management (CRM) strategy of the bank. Core banking systems reside
either in the heart of a bank's data center or in other words can also be termed as the heart of
the data-centre itself. CBS enable banks to offer a multitude of customer centric services on
a continuous basis from a single location, supporting retail as well as corporate banking
activities thus making “one stop” shop for financial services a reality. An important
development in 2009-10 was a significant increase in the percentage of branches of public
sector banks implementing CBS. The percentage of such branches increased from 79.4 per
cent at end-March 2009 to 90 per cent at end- March 2010. The percentage of branches under
CBS was much larger for the SBI group as compared to nationalized banks.
Nowadays, most banks use core banking applications to support their operations
where CORE stands for "centralized online real-time exchange". This basically means that
the entire bank's branches access applications from centralized datacenters. This means that
the deposits made are reflected immediately on the bank's servers and the customer can
withdraw the deposited money from any of the bank's branches throughout the world. These
applications now also have the capability to address the needs of corporate customers,
providing a comprehensive banking solution. A few decades ago it used to take at least a day
for a transaction to reflect in the account because each branch had their local servers, and the
data from the server in each branch was sent in a batch to the servers in the datacenter only at
the end of the day (EOD).
2.3 ATM Services:
The third major technological development, which has revolutionized the delivery
channel in the banking sector, has been the Automated Teller Machines (ATMs). It has
gained prominence as a delivery channel for banking transactions in India. ATM means
neither “avoids traveling with money” nor “any time money,” but certainly implies both.
Further, introduction of automated teller machines (ATMs) enabled customers to do banking
39 | P a g e
without visiting the bank branch. The first bank to introduce the ATM concept in India was
the Hong Kong and Shanghai Banking Corporation (HSBC) in the year 1987. Now, almost
every commercial bank gives ATM facilities to its customers. SBI is following the concept of
'ATMs in Quantity’. The Corporation Bank has the second largest network of ATMs amongst
the public sector banks in India. ATM is designed to perform the most important function of
bank. It is operated by plastic card with its special features. The plastic card is replacing
cheque, personal attendance of the customer, banking hour’s restrictions and paper based
verification. ATMs have made hard cash just seconds away all throughout the day at every
corner of the globe. ATMs allow you to do a number of banking functions – such as
withdrawing cash from one’s account, making balance inquiries and transferring money from
one account to another – using a plastic, magnetic-strip card and personal identification
number issued by the financial institution. While ATM facilitates a variety of banking
transactions for customers, their main utility has been for cash withdrawal and balance
enquiry.
Today’s all public sector banks are taking the installation of ATMs seriously for
Indian market. They are either setting up their own ATM centres or entering into tie-ups with
other banks. Since April 2009 access in any ATM is free of charge it is the great opportunity
to any ware banking in India. ATMs, particularly off-site ATMs, act as substitute for bank
branches in offering a means of anytime cash withdrawal to customers. Growth in ATMs,
which have been generally on a steady rise in the recent years, was observed to be 37.8 per
cent in 2009-10 and in 2010-11 the number of ATMs witnessed a growth of 24
per cent over the previous year.
Table I: ATMs of Scheduled Commercial Banks
S.No Bank group On-site Off-site Total Off-site ATMs

ATMs ATMs number as percent of
of ATMs total ATMs
I Public sector banks 29,795 19,692 49,487 39.8
1.1 Nationalized banks* 15,691 9,145 24,836 36.8
1.2 SBI group 14,104 10,547 24,651 42.8
II Private sector banks 10,648 13,003 23,651 55.0
2.1 Old private sector banks 2,641 1,485 4,126 36.0
2.2 New private sector banks 8,007 11,518 19,525 59.0
III Foreign banks 286 1,081 1,367 79.1
All SCBs (I+II+III) 40,729 33,776 74,505 45.3
Source: Report on Trend and Progress of Banking in India 2010-11
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However, the percentage of off-site ATMs to total ATMs witnessed a
marginal decline to 45.3 per cent in 2010-11 from 45.7 per cent in 2009-10.
More than 65 per cent of the total ATMs belonged to the public sector banks
as at end March 2011. During 2010-11, the number of debit cards grew at
the rate of 25 per cent over the previous year. In sync with the trend
observed in case of ATMs, nearly three-fourths of the total debit cards were
issued by PSBs by the end March 2011. The share of PSBs in outstanding
debit cards witnessed an increase during the recent years, while that of new
private sector banks and foreign banks witnessed a decline over the same
period.
Table 2: Debit Cards Issued by Scheduled Commercial Banks

(As at end-March 2011)
S. No. Bank group Outstanding Number of Debit Cards
2006-07 2007-08 2008-09 2009-10 2010-11
I Public sector banks 44.09 64.33 91.7 129.69 170.34
1.1 Nationalized banks 19.24 28.29 40.71 58.82 80.27
1.2 SBI group 24.85 36.04 50.99 70.87 90.07
II Private sector banks 27.19 34.1 41.34 47.85 53.58
2.1 Old private sector banks 3.94 5.34 7.09 9.81 12.44
2.2 New private sector banks 23.25 28.76 34.25 38.04 41.14
III Foreign banks 3.70 4.02 4.39 4.43 3.92
All SCBs (I+II+III) 74.98 102.44 137.43 181.97 227.84
Source: Report on Trend and Progress of Banking in India 2010-11
The Reserve Bank has advised banks to put in place a system of

online alerts latest by June 30, 2011 to cardholders, for all types of
transactions, irrespective of the amount involved through various channels
due to the increased instances of fraudulent withdrawals at ATMs. Further,
banks have also been advised to provide complaint templates at all ATM
sites for lodging ATM-related complaints.
2.4 Telephone Banking, Mobile Banking and SMS Banking:

Mobile phones as a medium for extending banking services have off-late been
attaining greater significance. The rapid growth in users and wider coverage of mobile phone
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networks have made this medium an important platform for extending banking services to
customers. With the rapid growth in the number of mobile phone subscribers in India (about
261 million as at the end of March 2008 and growing at about 8 million a month), banks have
been exploring the feasibility of using mobile phones as an alternative channel of delivery of
banking services. Some banks have started offering information based services like balance
enquiry, stop payment instruction of cheques, transactions enquiry, and location of the
nearest ATM/branch etc. Acceptance of transfer of funds instruction for credit to
beneficiaries of same/or another bank in favour of pre-registered beneficiaries have also
commenced in a few banks. In order to ensure a level playing field and considering that the
technology is relatively new, Reserve Bank has brought out a set of operating guidelines for
adoption by banks.
Telephone banking is specific provision of banking services over the telephone. It is a

term used for performing balance checks, account transactions, payments, credit applications
and other banking transactions through a mobile device such as a mobile phone or Personal
Digital Assistant (PDA). The earliest mobile banking services were offered through SMS. It
allows customers to perform transactions over the telephone. Most telephone banking use an
interactive voice response (IVR). Mobile banking is the hottest area of development in the
banking sector and is expected to replace the credit/debit card system in future. Most of banks
are providing SMS alert facility to their customers. Facility of SMS services in banking
becomes very much safe and useful in recent days. Mobile banking can offer services such as
the following:
Account Information:
a. Mini-statements and checking of account history;

b. Alerts on account activity or passing of set thresholds;
c. Monitoring of term deposits;
d. Access to loan statements;
e. Access to card statements;
f. Mutual funds / equity statements;
g. Insurance policy management;
h. Pension plan management;
i. Status on cheque, stop payment on cheque;
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j. Ordering cheque books;
k. Balance checking in the account;
l. Recent transactions;
m. Due date of payment (functionality for stop, change and deleting of payments);
n. PIN provision, Change of PIN and reminder over the Internet;
o. Blocking of (lost, stolen) cards.
Payments, Deposits, Withdrawals, and Transfers:
p. Domestic and international fund transfers;

q. Micro-payment handling;
r. Mobile recharging;
s. Commercial payment processing;
t. Bill payment processing;
u. Peer to Peer payments;
v. Withdrawal at banking agent;
w. Deposit at banking agent;
Investments:
a. Portfolio management services;

b. Real-time stock quotes;
c. Personalized alerts and notifications on security prices;
d. mobile banking.
Support:
a. Status of requests for credit, including mortgage approval, and insurance coverage;
b. Check (Cheque) book and card requests;
c. Exchange of data messages and email, including complaint submission and
tracking;
d. ATM Location;
Content Services:
e. General information such as weather updates, news;
f. Loyalty-related offers; and
g. Location-based services.
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Based on a survey conducted by Forrester, mobile banking will be attractive mainly to
the younger, more "tech-savvy" customer segment. Every third of mobile phone users say
that they may consider performing some kind of financial transaction through their mobile
phone. But most of the users are interested in performing basic transactions such as querying
for account balance and making bill payment.
CHAPTER NO- 6
ADVANTAGES OF NATIONALISATION BANK
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Introduction
Indian's finance and economic condition are superior to any other countries of the world. The
study suggested that the Indian banking sector has been very strong and also withstood the
global downturn. Innovation in the banking model for payment is happening. There is also
restructuring in the banking sector. There is also a faster digital payment system in the Indian
banking sector. Our faster payments innovation index is 5 which are considered very well.
There are 56 regional banks, 49 foreign banks, 27 public sector banks, 21 private sector
banks, 1562 urban credit cooperative banks, and 94,384 rural cooperative banks. It is also
noted that India has the fourth largest retail credit market in emerging countries. In
September 2018, the government of Indian started post payment bank and opened branches in
650 districts across India. This step is good for financial inclusion. There was a biggest
financial deal between Indusind bank limited and Bharat Financial Inclusion Limited
amounting to 2.4 million dollars. Microfinance sector is also growing very rapidly in India.
As per the report in Business Standard 31st July 2018, microcredit has witnessed the growth
of 40% year on year. The government of India has also made the Pradhan Mantri Jan Dhan
Yojana in which almost thirty crore family have opened the account and account holders have
deposited.
About Profitability and its Determinants: The financial performance of any banks depends
on profitability. There is tough competition in the market. Nationalized banks are competing
to private sectors and foreign banks. It is said that private banks are very flexible in their
approach toward the clients. Private Banks are also offering innovative products to serve the
customer better. Thus private banks can earn more profit. But nationalized banks have
government restrictions. They are following RBI guidelines very strictly. They cannot be as
much flexible as in private banks. Their employees are secured by the permanent status of the
job. Therefore they are least bothered about the quality of service to the clients. They
are less innovative and creative in their approach. Their mind set is totally different from
the mind of the employees of private banks. So such a situation naturally affects the
performance of nationalized banks. Besides these qualitative phenomena, there are
quantities of aspects which affect the profitability of the banks. There are two types of
factors affecting profitability (1) Internal variables which are also known as banks
specific variables and (2) external variables which are known as macroeconomic variables.
The researcher has identified some of the most important banks' specific variables which
affect profitability. There are various measures of profitability such as return on assets, return
on equity and net income margin. The researcher has taken ROA as a measure of
profitability. The researcher has also identified nine variables as independent variables.
Dependent and Independent variables are given below:
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Screenshot of RBI Data
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Here are 10 ways the nation benefitted from the nationalisation:
1. Prevention of Monopoly
Before the government Nationalized banks, corporate families controlled banking systems in
India. It effectively ensured a monopoly over capital. Bank nationalisation helped make the
economy more equitable and opened bank credit to even people without connections.
2. Reducing Regional Imbalance
Bank nationalisation helped in more equitable regional growth since banking system was
concentrated in urban centres and that too largely in the West and the North.
3. Improvement in working conditions
As per RBI records, there were 1833 banks in rural areas in the country in 1969, which
increased to 33,004 by 1995 and continued to grow over the next decade. Government
banking improved working conditions of the employees also in the banking sector. The state
ensured higher wages, security of services and other fringe benefits.
4. Protection of Public Interest
Unhealthy competition among industrialists injured the interest of the public which was
measured and mitigated by state ownership.
5. Centralised Management
Centralised management made possible due to coordination in Nationalized banks helped

provide uniform services throughout the country. It thus enabled the state to solve the
problems of organisation, capital, labour operation and marketing.
6. Use of Surplus Profit
Under state ownership the profit earned by banking enterprises could be utilised for greater
public good and help in supporting the Government’s economic policies.
7. Uniformity and Stability in Services
Nationalisation ensured uniform banking services and reached banking services to different
corners of the country. Banking services were placed within reach of people in rural areas and
reduced their dependence on moneylenders
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8. Core Sector Lending
Private banks were averse to lend to Agriculturists and to the core sector of steel and coal,
which required huge investment. Nationalisation made funds available to these sectors.
9. Increase in Standard of Living
It enabled rapid increase in the number of banking offices in rural and semi-urban areas and
helped considerably in deposit mobilisation with the added benefit of the expansion of
personal loans giving a fillip to consumption.
10. Developing banking habits
RBI records show that per capita deposits increased from Rs. 88 in 1969 to Rs. 4242 by 1995
and have further increased with time.
11. Development-oriented Banking: Historically, Indian banks were mainly concerned with
the growth of commerce and some of the traditional industries such as, cotton textile and jute.
The banks were concentrated in the big commercial centres. They mostly granted short-term
commercial loans. They were unwilling to venture into new fields of financing. But after
nationalization of banks, the concept of banking has widened from acceptance of deposits and
mere lending to development oriented banking. Banks are increasingly catering to the needs
of industrial and agricultural sectors. From short- term lending, banks have been gradually
shifting to medium and even long-term lending. From well-established large industries and
business houses, banks are positively shifting to assisting small and weak industrial units,
small farmers, artisans and other neglected groups of people in the country. They have
adopted the Lead Bank Scheme. Under this scheme, all the districts of the country are allotted
to some bank or the other.
The lead bank of district is actively engaged in:
1. Opening bank branches in all important localities.

2. Providing maximum credit facilities for development in the district, and
3. Mobilizing the savings of the people in the district.
12. Branch Expansion: Rapid economic development pre-supposes rapid expansion of

commercial banks. Initially, the banks were conservative and opened branches mainly in
cities and big towns. Branch expansion gained momentum after nationalization of top
commercial banks and the introduction of “Lead Bank Scheme.” The Lead Bank Scheme has
played an important role in the bank expansion Program. The number of branches of all
scheduled commercial banks increased from 8,260 in 1969 to 1,02,343 in march 2013. Thus
within 44 years after bank nationalization, there was over 900 per cent increase in the number
of branches. There had been a significant increase in bank branches in the rural, under banked
and unbanked areas.
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The number of branches in rural areas increased from 1860 in 1969 to 37,953 in 2013. With
the progress of branch expansion Program, the national average of population per bank office
has declined from 63,800 to 15,000. M. Gopal krishnan says “the single striking feature of
the post-nationalization banking scene is the rapidity with which the branch network has
multiplied itself. The rate of branch expansion has been unparalleled any where else in the
world.” Thus, the overall growth of bank branches in the last 30 years has been remarkable in
its geographical coverage and removal of regional imbalances in the country.
13. Expansion of Bank Deposits: Since nationalization of banks, there has been a substantial
growth in the deposits of commercial banks. Thus bank deposits had increased by 150 times.
Development of banking habit among people through publicity, extensive branch banking
and prompt service to the customers led to increase in bank deposits. To attract deposits,
Indian banks have introduced many attractive saving schemes. To attract deposits from
widely scattered areas, mobile bank’s branches have been introduced by a number of banks.
A number of banks have started evening branches, Sunday branches for the benefit of their
customers. Apart from the quantitative increases in deposits, there has been an impressive
qualitative shift. The number of small account holders with the banks has been increasing
day-by-day. Aggregate deposits are composed to time deposits and demand deposits.
Earlier there was predominance of demand deposits. Now there is predominance of time
deposits. The ratio of time deposits to total deposits has been increasing.
14. Credit Expansion: The expansion of bank credit has also been more spectacular in the
post-bank nationalization period. At present, banks are also meeting the credit requirements
of industry, trade and agriculture on a much larger scale than before. Credit is the pillar of
development. Bank credit has its crucial importance in the context of development and
growth with social justice.
15. Investment in Government Securities: The nationalized banks are expected to provide
finance for economic plans of the country through the purchase of government securities.
There has been a significant increase in the investment of the banks in government and other
approved securities in recent years.
16. Growing Importance of Small Customers: The importance of small customers to banks
has been growing. Most of the deposits in recent years have come from people with small
income. Similarly, commercial banks lending to small customers has assumed greater
importance. Thus banking system in India has turned from class-banking to mass banking.
17. Advances to Priority Sectors: An important change after the nationalization of banks is
the expansion of advances to the priority sectors. One of the main objectives of
nationalization of banks to extend credit facilities to the borrowers in the so far neglected
sectors of the economy. To achieve this, the banks formulated various schemes to provide
credit to the small borrowers in the priority sectors, like agriculture, small-scale industry,
road and water transport, retail trade and small business. The bank lending to priority sector
was, however, not uniform in all states. It was quite low in many backward states like U.P.,
Bihar and Rajasthan. Under the new banking policy stress is laid on the weaker and under-
privileged groups in the priority sector “weaker sections” refer to all persons who became
suppressed, depressed and oppressed because of socio-political, socioeconomic or socio-
religious reasons.
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The concept of profitability has been substituted by “social purposes” with regard to lending
to weaker sections of the society. Quantitatively, banks have done well in priority lending.
But over-dues and bad debts have been a serious problem faced by banks in
respect of advances made to the weaker sections of the society. There is always the problem
of ensuring the effective end use of the loans given to the priority sectors.
18. Social Banking – Poverty Alleviation Program: Commercial banks, especially the
nationalized banks have been participating in the poverty alleviation Program launched by the
government.
19. Differential Interest Scheme: With a view to provide bank credit to the weaker
sections of the society at a concessional rate the government introduced the “Differential
interest rates scheme” from April 1972. Under this scheme, the public sector banks have been
providing loans at 4% rate of interest to the weaker sections of the society.
20.Integrated Rural Development Program (IRDP): This is a pioneering and ambitious

Program to rectify imbalances in rural economy and also for all- round progress and
prosperity of the rural masses. Under this Program banks has assisted nearly 1.8 million
beneficiaries during 1997-98 and disbursed a total amount of Rs. 1990 crores as loan. Out of
the beneficiaries, over 1 million belonged to scheduled castes and scheduled tribes and 0.7
million were women. Other important scheme introduced by the government of India and
implemented through the banking system includes
1. self-employment scheme for educated youth,
2. self-employment Program for urban poor, and
3. credit to minority communities.
19. Innovative Banking: In recent years, commercial banks in India have been adopting the
strategy of “innovative banking in their business operations.” Innovative banking implies the
application of new techniques, new methods and novel schemes in the areas of deposit
mobilization, deployment or credit and bank management. Mechanization and
computerization processes are being introduced in the day-to-day working of the banks.
20. Globalization: The liberalization of the economy, inflow of considerable foreign

investments, frequency in exports etc., have introduced an element of globalization
in the Indian banking system.
21. Diversification in Banking: The changes which have been taking place in India since
1969 have necessitated banking companies to give up their conservative and traditional
system of banking and take to new and progressive functions. The government had been
encouraging commercial banks to diversify their functions. As a result, commercial banks
have set up merchant banking divisions and are underwriting new issues, especially
preference shares and debentures. There are now eight commercial banks which have set up
mutual funds also. Commercial banks have started lending directly or indirectly for housing.
Venture capital fund is also started by one public sector bank. State Bank of India and Canara
Bank have set-up subsidiaries exclusively for undertaking “factoring services.” In future all
commercial banks can be expected to diversify their functions and adopt new technologies.
OTHER ADVANTAGES
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1. Safeguards the interests of Labourers :Nationalization also came to be regarded as holding
the key to better relations between labour and management. Under private capitalism the
managers are agents acting for a host of owners. They have therefore to oppose the demands
of labour in every case to safeguard the owners’ interests and to keep their own position
absolutely safe and clear. This would not be so under a system of nationalized industries,
because the interests of the labourers would not be opposed to those of the managers. Both
would act on behalf of the nation and get such rewards for their services as the nation is
willing to pay.
2. Technical efficiency and lower cost of production: The managers, freed from their tutelage
to the industrial overlords, would devote themselves entirely to improving technical
efficiency and lowering the cost of production.
3. Cooperation and prosperity for all: The industrial world, under private capitalism, is torn as
under by strife and discords. There are frequent stoppages of production or, at least, the
quantity and quality of work have to suffer as a result of this bitterness. Nationalization
would do away with industrial unrest and usher in a period of cooperation and prosperity for
all.
4. Increased earnings of the State: Nationalization of some important industries would enable
the State to earn large revenue easily and without any extra cost.
5. Control over prices of war supplies: During war, nationalization would help because the
government could not be forced to pay exorbitant prices for war supplies by a handful of war
profiteers.
6. Employment opportunities: In periods of unemployment, people could be given

employment expanding the activities of the nationalized industries.
7. Economic and political growth: In short, nationalization would help the State to order the
political and economic life of the nation more conveniently both in peace and in war. Without
mastery over certain industries, at least, the government would be solely at the mercy of the
economic lords. With nationalization the tables are turned and the State can dictate its own
terms to those industrial magnates as are allowed to remain.
CHAPTER NO- 7
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CHALLENGES ON NATIONALISATION BAKNS
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CHALLENGES ON NATIONALISATION BAKNS
Problems pertaining to Branch Expansion:

There has been expansion of bank branches in India, which accounts almost 7,5 fold increase
in the number of bank branches over last decade. The share of public sector banks in total
increase in the bank branches is around 70%. In 1969, the number of rural branch of the bank
was 22 which has increased and reached to 36.1% in 2011. The average population per bank
in India at the end of June, 2011 was 14000 as against 4000 in England and Canada, 7000 in
USA and 5000 in Germany. It has been observed that the public sector banks are more
concerned to the fulfilment of the physical targets, which should be avoided. The rural bank
branches are starving for trained and skilled staff, which hamper the business potentials of the
banks. A lack of report has been found between the bank staff and the villagers. There has
been time dispute between the farmers and the staff for banking hours. The observation of the
branch expansion process in India reveals that the expansion process has mainly been seen in
the considerably developed regions of Western and Southern India while the poor and
backward states have derived less benefit.
2. Problem Pertaining to Deposit Mobilization:

Rise in the money income of the people, Increase in the number of bank offices Special
efforts for deposit mobilization by the scheduled banks b introducing innovative schemes for
savings and offer of various types of incentives to the customers; led an increase in the
amount of bank deposits. Only 25% of the total deposits belongs to rural areas. Lack of
adequate bankable and creditworthy development projects in rural area leads to the diversion
of rural deposits to the urban areas. The nationalized banks are also facing competition from
some financial institutions as they are providing more interest on deposits than that of
nationalized banks.
3. Problems pertaining to Credit:

Total bank credit in 1969 was 3035 cr. And increased to 29,96,655 cr. In 2011. Prior to bank
nationalization, a substantial part of bank credit was given to trade, commerce and industry
which formed about 86%of the bank credit, while the share of agriculture was hardly 2%,
credit to small industries, self employed and retail traders was neglected. Post nationalization
there has been fundamental and qualitative change has taken place in composition of bank
credit. Under social banking credit on a preferential basis to the priority sectors of the
economy and to the weaker section of the society has been given.
The priority sectors mainly includes:

a) Agriculture
b) Small scale industries
c) Small business and retail trade
d) Small road and water transport operations
e) Professional and self employed persons
f) Export sector
g) Education and housing loans. In the process of expansion of bank credit, following
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problems have evolved:
a) Small and marginal farmers have derived relatively less benefits from banks.
b) Lack of coordination between the credit activities of nationalized banks and other
institutions engaged in the similar task.
c) Lack of physical infrastructural facilities and marketing arrangements.
d) Lack of up to date land records, competition from private lending agencies, small
and fragmented holdings leads to difficulties in providing credit to small farmers.
e) Lack of effective supervision on end use of credit.
f) High proportion of overdue due to poor recovery of loans.
4. Problem of Low Efficiency:

The quality of customer services has been deteriorated in the post nationalization period.
Staff indiscipline, lack of devotion, red tap ism, corruption, malpractices, neglect of duty,
lack of initiative and quasi decisions all have impaired the smooth working of public sector
banks.
5. Frauds and Robberies:

During the calendar year of 2000, commercial banks reported 3072 cases of frauds involving
an amount of 679,52 cr, in addition 8 cases of frauds involving an amount of 1,59 cr. Were
reported in the overseas branches. The central vigilance commission has to be more alert and
security arrangements in banks have to be upgraded in co-ordination with the home and
police departments of the concerned state governments.
6. Low profitability of the Public Sector Banks:

27 public sector banks had shown a net profit of Rs. 44901 cr. In 2010-11 0.85% of total
assets)23 old private Indian banks was having 3102 cr. Of net profit (1% of the total assets) 8
new private banks were with 1.34% of total assets as net profit.42 foreign banks were with
1.57% of the total assets as net profit. The causes of low profitability of the public sector
banks were.
1. Rapid branch expansion
2. High cost of establishment
3. Inadequate training
4. Concessional finance
5. Lack of cost consciousness
6. Inadequate recovery and overstaffing
7. Increase in Non-performing assets.
7. Politicization of Banking Operations:

Political interference in the banking operations, particularly in the case of public sector banks
has been held responsible for wide spread defaults. The Agriculture Credit Review
Committee had observed in 1989 that commercial banks in India are over controlled,
overregulated and over managed by the central government. The committee had noted that in
respect of rural loans, a large number of beneficiaries are identified not by banks or even by
government agencies but by the functionaries of political parties. This has to be checked and
the banks should be freed from political interference.
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8. Non-Performing Assets (NPAs) of Banks:
Banks earn profits out of the Loans and Advances. However quite a high percentage of their
advances are not recovered; neither the interest nor the principle amount. It adversely affects
the earning of nationalized and other banks. Banks as well as RBI have taken many steps to
recover their NPAs. An ordinance is promulgated in order to empower them to recover their
dues. It has become an Act called ‘Securitization Act’ in 2002. The banks have got wide
powers under the Act to enforce recovery of NPAs. From the year 2003 it has been decided to
extend the benefits of this act to co-operative banks as well. It is expected that this act will go
a long way in tackling the problem of their NPAs.
Non-Performing Assets:
Meaning: An asset becomes non-performing when it ceases to generate income for the bank.
A non-performing asset is defined as a credit facility in respect of which the interest and/or
instalment of principal has remained ‘past due’ for a specified period of time. Interest and/or
instalment of principal remained overdue for more than 90 days in respect of a term loan. The
account remains ‘out of order’ in respect of over draft/ cash credit. The bill remains overdue
for a period for more than 90 days in the case of bill purchased and discounted. Interest
and/or instalment of principal remains overdue for two harvest season but for a period not
exceeding two and a half year in the case of an advance grated for agricultural purposes. Any
amount to be received remains overdue for a period of more than 90 days in respect of other
accounts.
Classification: Banks are required to classify non performing assets further in to the
following three categories according to the period for which the assets has remained non-
performing and the responsibility of the dues: Substandard and assets: Which has remained
NPA for a period less than or equal to 12 months. Doubtful assets: If asset remained in the
substandard category for 12 months. Loss assets: Where the loss has been identified but the
amount has not been written off wholly.
NPAs of Banks in India: Total NPAs of scheduled banks in India were Rs. 81813 crs. On
31st march 2010; in which NPAs of public sector banks were Rs. 57301 crs. And NPAs of
private sector banks were Rs. 17384 crs. Among the various channels of recovery available to
the banks for dealing with the bad loans, the SARFAESI and the Debt Recovery Tribunals
have been the most effective.
Causes of NPAs: It should be noted that in the developed countries, NPA in the banking
sector emerge generally as the result of excess lending to the estate dealers and speculators
during the boom years and subsequent collapse of property prices. On the other hand, NPAs
in the banking sector arises in the developing countries because of poor quality of the loans
sanctions, nepotism (partiality) and political interference in the functioning of the banks.
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Tools available with the Banks to deal with their NPAs:
a) One time settlement: Banks have been advised to devise one time settlement scheme for
the resolution of NPAs, as a part of their loan recovery policy. In case of doubtful NPAs, the
minimum amount for One time settlement is 100% of the outstanding balance in the account
as on that date and 100% of the outstanding balance at the existing prime lending rate till the
date of final payment in case of Substandard NPAs.
b) Lok Adalat: for the settlement of the cases when the outstanding balance for doubtful and
loss categories is more than 5 lakh Rs. Banks approaches Lok Adalat. It helps in resolving the
disputes between the parties by conciliation, mediation, compromise or available settlement
and reduces the burden on courts. It is difficult to bring parties together when the Lok Adalat
meets.
c) Debt Recovery Tribunals: The DRTs were set up under the Recovery of Debts due to
Banks and Financial Institutions Act, 1933. There are two types of tribunals; (i) Debt
Recovery Tribunals (DRTs) and (ii) Debt Recovery Appellate Tribunals (DRATs). The order
of DRT is appealable at DRAT. The central government sets up the tribunals and provides
them with the presiding officer, recovery officer and other employees. Under the jurisdiction
of the local government, bank can file an application for the recovery to DRTs.at present
there are 25 DRTs and DRATs.
d) Corporate Debt Restructuring: to provide timely and transparent system of restructuring

of corporate debts of 20 crs. or above this scheme was introduced in 2001-02. Banks and
financial institutions have restructured more than 100000 debts through financial
restructuring, business restructuring and operational restructuring. Financial restructuring
includes extension of loan maturity, reduction of interest rates, write-off principal.
Business restructuring includes sale of assets or business unit, business division or merger or
amalgamation. Operational restructuring includes changes in company management, special
audits and liquidation of nonviable asstes.
e) SARFAESI Act: The government enacted the securitization and Reconstruction of

Financial Assets and Enforcement of Security Interest (SARFAESI) Act in 2002 for
realization of dues without the intervention of courts or tribunals. It aims to bring down the
level of risk in system and encourage banks lending activities. To resolve the problem NPAs
effectively, the Act deals with three aspects:
i. Securitization: Conversion of financial or non-financial asset into securities.
ii. Asset reconstruction: It is a financial tool for corporate debt restructuring and financial
rehabilitation through re bandling, takeovers or sale.
iii. Security enforcement: It refers to the right of lenders to foreclose a non performing loan.
The act does not apply to unsecured loans, loans below 100000 and loans where the
remaining principal due is less than 20% of the amount advanced. It is an effective weapon to
recover dab debts of the banks.
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CASE STUDY ON NATAIONALISATION OF COMMERCIAL BANK
INTRODUCTION: In 1969, fourteen major commercial banks were nationalized in India.

Foreign banks and other banks with deposits of less than Rs. 50 crores were not nationalized.
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Six more commercial banks were nationalized in 1980. The nationalized commercial banks
were at that time controlling 91% of total deposits and total credit. Nationalization of
commercial banks in India is looked as a significant effort of the Government of India to
strengthen the economy.
Arguments in favour of nationalization of commercial banks in India:

Various factors were responsible for the nationalization of commercial banks in India. A
discussion on these factors that helped in this, are as follows:
1) Too much concentration in the banking sector:

In 1959, there were 570 banks in India. However, in 1963 the number came down to 276.
However, during this period the amount of bank deposit had increased by more than two
times. This shows too much concentration in the banking sector. Again, out of 276 banks just
five banks contributed to more than 50% of the deposits. The big industrialists used the bank
funds to build up their industrial empires. This implies concentration of economic power. It
was thought that the nationalization of commercial banks would solve it.
2) Mobilized savings were not used for social development:

According to an estimate there were 188 directors in 20 commercial banks. These directors
used to control 1,640 companies. As a result, the savings of the commercial banks were used
for the promotion of the interests of a few groups of people. This was not utilized for general
economic development.
3) Hoarding of essential commodities of speculation:

The speculators could get higher profits as the general price level increased. These
speculators used to take loans from commercial banks. Thus, in order to check these
speculative activities the nationalization of commercial banks was thought to be essential.
4) To check illegal activities:

According to Indian Companies Act, each company has to submit the estimates of profit and
loss to the Registrar of Companies. However, the provision was not applicable to the banking
companies. The bank could hold secret reserve funds and declared lower profits. These funds
were used to purchase shares of different companies. The banks were involved in under
invoicing of exports and over invoicing of imports. It was thought that these illegal activities
could be checked as a result of bank nationalization.
5) Urban bias:
The banks were mostly confined to urban areas. They did not pay any attention to opening of
new branches of rural areas. But in order to have all round development of the country there
is need for opening up of new branches in rural areas. As a result of nationalization of
commercial banks it was thought that branch expansion of banks in rural areas will be
possible.
6) Discrimination against small business:

The banks lent money only to the big business units. They neglected the needs of the
agricultural sector. But the development of agricultural sector is necessary for the economic
development of the country. Agriculture is the priority sector. In order to ensure flow of
credit to the priority sectors, bank nationalization was thought to be essential.
7) Stopping of failure of banks:
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Up to early 1960s there were a large number of bank failures in our country. This hampered
the interest of the depositors. It was thought that through bank nationalization the confidence
of the public in commercial banks would rise. This would also check the growth of black
money in our country.
8) Improvement of service conditions of bank employees:

Nationalized banks would be able to provide better service conditions to their employees. The
efficiency of the banking business would rise through better training.
Arguments against nationalization of commercial banks in India:
1) Fall in efficiency:
It was thought by many economists that nationalization would reduce the efficiency of this
sector.
2) Deposit insurance corporation and bank failures:

After the establishment of Deposit Insurance Corporation, the deposits of the commercial
banks were insured. Therefore, the interest of the depositors was protected. There was no
need for bank nationalization.
3) Adverse effect on the private sector:

The commercial banks supplied credit mainly to the private sector. If banks were nationalized
it would adversely affect the growth of the private sector.
4) Rise in political pressure and fall in efficiency:

If banks were nationalized it was thought that political pressure would rise on the banks. The
politicians would force the banks to give loans on the basis of political considerations and not
on economic merit.
5) Huge compensation to the shareholders:

If a large amount of money was paid as compensation to the shareholders, the fund for
economic development would be reduced.
Performance of nationalized commercial banks since nationalization:

One of the major criticisms of commercial banks prior to nationalization was that they never
extended their hands to the priority sectors like agriculture, small scale industries, exports etc.
Before nationalization such banks operated with the profit motive only. But after
nationalization the scene changed to a huge extent. Commercial banks started to consider
objectives like social development and economic development of the nation. Thus, they
started supporting sectors on which the growth of the then Indian economy was dependent
heavily. The total credit provided by the public sector banks in 1969 was Rs. 440 crores. In
1988 it went up to a level of Rs. 29,330 crores.
Another massive change in the Indian banking scenario was observed as a result of
nationalization of commercial banks. Previously, the private banks were operating with only
the profit motive. So they were eager to operate and open their branches only in urban areas
where scope of business was bigger and brighter than the rural areas. After nationalization of
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these banks, there was a gigantic change in the motives of these commercial banks. They
were operating no more with just the profit motive. As a result of this, the commercial banks
started to extend their services in the rural areas also. This had a manifold effect on the Indian
economy. Firstly, due to this approach of the nationalized commercial banks there were more
branches being opened in rural areas. Thus, the untapped rural markets were also coming
under the ambits of the Indian banking industry. Secondly, this was helping in generation of
employment opportunities in the Indian job markets. Thirdly, from the point of view of
consumer behaviour it can be said that the vast population in the rural areas were being
exposed to the banking services. In this context, it is mention worthy that since 1969 to 1989
there was 600% growth rate observed in the opening of new branches of commercial banks.
Moreover, in June, 1969 on an average a branch of a bank was serving more than 65,000
customers in India. This number came down to 12,000 customers per branch in June, 1989.
Another significant impact was felt in case of deposit mobilization. The deposits of
commercial banks which stood at Rs. 4,650 cores in June, 1969 grew to Rs. 1,47,000 crores
in January, 1989.
However, in spite of these successes, there were also certain limitations of nationalization of
commercial banks. Profitability of the commercial banks declined to a huge extent.
Nationalization also made these commercial banks heavily dependent on the politicians. Thus
a large part of the bank credit was still being diverted towards the big industries and corporate
houses. Lastly, it can be said that nationalization brought in security in the lives of the
banking employees. This established a complacent attitude thereby resulting into a sharp
decline in the standard of the banking services provided to the customers.
In conclusion, it can be said that due to nationalization of commercial banks the Indian
banking industry faced a steep challenge. It was the challenge of blending the profit motive
with the objective of social and economic development of the nation. The game of balancing
these two diagonally opposite sets of goals is still on.
60 | P a g e
CONCLUSION
The study intends to examine the consequences of privatization and nationalization for Indian
banking industry. The results obtained from DEA analysis have shown an increasing pattern
for IDBI Bank Ltd, Centurion Bank Ltd, and Indian Overseas Bank. The efficiency of Indian
banking industry after privatization and nationalization process is emerged from loans and
investments. Similarly, the efficiency of HDFC Bank, Bank of Baroda, and Federal Bank was
higher as compared to other selected banks after being privatized. Privatization can be
considered as the crucial factor after technological forces, which expand the profitability and
productivity of banks, as observed through the analysis. Capital structure can be further
improved after spending massive revenue in the domestic and international capital markets.
Indian Overseas Bank, Punjab National Bank and Oriental Bank of Commerce have a broad
perception towards their financial performance during 1998–2016. There is a positive
influence of privatization on the profitability and efficiency of Indian private banks.
Additionally, the study revealed that the performance of private banks sustained to increase
after acquiring targeted banks. The outcomes of the present study could further be examined
by increasing the extent of input and output variables. Future studies may recruit greater
sample size to evaluate the privatization and nationalization effects of Indian banking
industry. Greater number of banks will provide more precise results, using data envelopment
analysis. CAMEL approach can also be employed on greater sample size to evaluate the
privatization and nationalization effects. Future studies may recruit national and private banks
separately and compare their financial performance before and after privatization empirically.
The comparison will assist to comprehend the future strategies for banking sector in a more
precise manner.
61 | P a g e
REFRENCE/BIBLIOGRAPHY
PROJECT BASED ON SECENDORY DATA AVAILABLE ON THE INTERNET

LIKE PDF, BOOKS, ARTICLE, BLOGS, MAGZINE.
LINKS ARE PROVIDED BELOW:
https://www.researchgate.net/profile/Anamitra-Roy-
4/publication/343335927_Nationalization_of_Commercial_Banks_in_India/links/5f23e424a6
fdcccc439bf1d8/Nationalization-of-Commercial-Banks-in-India.pdf?
origin=publication_detail
https://s3.amazonaws.com/ppt-download/chapter2-nationalizedbanks-160807125048.pdf?
response-content-disposition=attachment&Signature=VErno%2FZ4LlTTliAd2t5edqHZNNM
%3D&Expires=1614411437&AWSAccessKeyId=AKIAIA5TS2BVP74IAVEQ
https://rbidocs.rbi.org.in/rdocs/Content/PDFs/FUNCWWE080910.pdf
https://www.researchgate.net/profile/Sankararaman-
Ganapathyraman/publication/333995126_A_Comparative_Study_on_Nationalized_and_Priv
ate_Sector_Banks_in_Kanchipuram_in_the_Context_of_Economic_Meltdown/links/5d11cf7
b92851cf440494b14/A-Comparative-Study-on-Nationalized-and-Private-Sector-Banks-in-
Kanchipuram-in-the-Context-of-Economic-Meltdown.pdf?origin=publication_detail
https://www.epw.in/system/files/pdf/1955_7/4-5/nationalisation_of_the_imperial_bank.pdf
https://www.ijemr.net/DOC/CommercialBanksInIndiaProfitabilityGrowthAndDevelopment(3
64-370).pdf
https://www.fiib.edu.in/images/fbr/A-Study-on-Performance-of-Nationalised-Banks-in-
Indian-Stock-Market.pdf
Nationalisation of Banks in India: What, Why, How, Pros & Cons | UPSC - IAS EXPRESS
Nationalisation of banks and its impact on Indian economy: An overview - Economy (GS: 3)
EMPOWER IAS | Empower IAS
Nationalisation of Banks in India - Meaning, Objectives, Pros and Cons - Free BCom Notes
Nationalized Banks In India | IndianMoney
Nationalization of Commercial Banks: Objectives and Performance (economicsdiscussion.net)
62 | P a g e

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PROJECT GUIDE EXTERNAL EXAMINER

MISHRA SHUBHAM KRISHNA

MISHRA SHUBHAM KRISHNA

CHAPTER CHAPTER NAMES PAGE

BASIC KNOWLADGE ABOUT

2 HISTORY OF NATIONALISATION BANKING 14-19

3 ROLE OF NATIONALISATION BANKING 20-26

4 OBJECTIVE AND FEATURES OF 27-33

6 ADVANTAGES OF NATIONALISATION BANK 44-51

7 CHALLENGES ON NATIONALISATION BAKNS 52-56

8 CASE STUDY 57-60

BANK NATIONALISATION AND PUBLIC SECTOR BANKING

OBJECTIVES OF THE STUDY

The study has the following objectives

• 1955 – State Bank of India nationalized.

• 1959 – 7 subsidiaries nationalized and associated with SBI.

1. State Bank of Bikaner and Jaipur

• 1969 – 14 major commercial Banks nationalized on 19th July 1969.

• 1980 – 6 more commercial Banks nationalized.

Banking System In India

History of Banking in India - Stages of Evolution

The history of Banking can be mainly categorized into 3 stages –

1. Pre Independence Stage - Before 1947

History of Banking in Pre Independence Stage

Bank Name Established in

evolution of the banking sector in India.

The banking sector development can be divided into three phases:

Phase I: The Early Phase which lasted from 1770 to 1969

to flourish till date

● The General Bank of India (1786-1791)

● Indian account holders had become fraud prone

Given below is the list of these 14 Banks Nationalized in 1969:

1. State Bank of Patiala

DATA ANALYSIS OF NATAIONALISATION BANKS IN THE DEVELOPMENT

Sl No. Name of banks Years

[Source: Annual Credit Plan of Bagalkot district 2013-14 to 2018-19]

Growth of Advance in nationalized

[Source: Annual Credit Plan of Bagalkot district 2013-14 to 2018-19]

2. Controlling Private Monopolies:

3. To Curb the Evil of Inter-locking of Directorates:

4. Allocation of resources in Accordance with Plan Priorities:

6. Reducing Regional Imbalance:

8. To reduce monopoly practices: Initially, a few leading industrial and "business houses

TRADITIONAL FUNCTION / CORE FUNCTION :

Advancing Loan: Another primary function of the commercial bank is to advancing

Other services / functions:

2. Recent Technological and Other Developments in Banking Sector:

2.1 Bank Computerization:

2.2 Core Banking Solutions (CBS):

Table I: ATMs of Scheduled Commercial Banks

S.No Bank group On-site Off-site Total Off-site ATMs

Table 2: Debit Cards Issued by Scheduled Commercial Banks

The Reserve Bank has advised banks to put in place a system of

2.4 Telephone Banking, Mobile Banking and SMS Banking:

Telephone banking is specific provision of banking services over the telephone. It is a

a. Mini-statements and checking of account history;

Payments, Deposits, Withdrawals, and Transfers:

p. Domestic and international fund transfers;

a. Portfolio management services;

2. Reducing Regional Imbalance

3. Improvement in working conditions

4. Protection of Public Interest