India's banking sector has a long list of notable accomplishments to its credit during

the last three decades. The most striking feature is its breadth of application. It is no
longer limited to India's metropolises and cities. In fact, the Indian financial system
has expanded to include even the most remote parts of the country. This is one of the
most important factors of India's development.

HISTORY:

In India, modern banking did not begin until the early nineteenth century. Employees
of the East India Company established the first commercial banks in India. 'Agency
House' was the name given to these banks. They were mostly trade companies that
merged banking with other operations like trading and speculating.

Banking in India as we know it now began in the latter decade of the 18th century,
with the establishment of Bank of Hindustan in 1770. The Bank of Calcutta, the Bank
of Bombay, and the Bank of Madras were formed in 1806, 1840, and 1843,
respectively. On January 27, 1921, these three presidential banks merged to become
Imperial Bank of India. After independence, the Imperial Bank of India was renamed
and became the State Bank of India in 1955 making it India's largest and oldest bank.

Between 1913 and 1948, the initial phase of expansion was sluggish, and banks faced
recurrent collapses. There were around 1,100 banks, the most of which were tiny. The
Banking Companies Act, 1949, was enacted by the Indian government to standardise
the operation and activities of commercial banks. It was later amended in 1965 to
become the Banking Regulation Act, 1949. As India's central banking authority, the
Reserve Bank of India (RBI) was given broad responsibilities to oversee banking in
the country. Banks were viewed with scepticism by the general people at the time.
Deposit mobilisation was sluggish as a result. Furthermore, the Postal Department's
savings bank facility was comparably safer, and money were primarily handed to
dealers.

SO WHY DID THE FIRST NATIONALISATION HAPPEN?

The State Bank of India (SBI) was the sole non-privately owned bank until 1969.
Prior to its nationalisation in 1955, it was known as the Imperial Bank.
The transfer of control of these 14 banks to the government was largely motivated by
two factors. The first was the unpredictability with which these private enterprises
operated. According to a study in The Economic Times, from 1947 to 1955, 361
private banks "failed" across the country, averaging over 40 each year. The majority
of the time, this resulted in depositors losing all of their money because their banks
provided no assurance.

Second, these commercial banks were viewed as serving big corporations and
industries. Agriculture was generally overlooked by these financial institutions. Only
2.3 percent of bank loans were directed to farmers in 1950. Instead of improving, the
situation worsened with time, with the figure falling to 2.2 percent by 1967.

WHAT WAS PROMISED?

Given these conditions, the declared goal of this legislation was to make credit more
accessible to the "priority sector," which included farmers, small businesses,
merchants, and entrepreneurs.

Furthermore, the establishment of bank branches in rural and backward parts of the

country was a priority.

Indira Gandhi told the Lok Sabha on 29 July 1969 that the “purpose of nationalization
is to promote rapid growth in agriculture, small industries and export, to encourage
new entrepreneurs and to develop all backward areas".

DID NATIONALISATION DO ANYTHING BENEFICIAL FOR THE ECONOMY?

The effects of bank nationalisation may be divided into three categories: deposits,
lending, and interest rates. One benefit of bank nationalisation was that it increased
financial savings by allowing lenders to build additional branches in previously
unbanked regions. In the 1970s, gross domestic savings as a percentage of national
income nearly doubled.

But on the contrary, the negatives of nationalisation overpowered the positives.

Nationalised banks' performance in terms of branch expansion and deposit growth has
never surpassed that of commercial banks.
Furthermore, while it served the agriculture sector, the well-off farmers got the most
benefits in terms of borrowings, while the poorer and needier farmers were left out.
Traders, enterprises, and industries all followed the same pattern.

INDIA TODAY:

On February 1, Finance Minister Nirmala Sitharaman said that the government

planned to privatise two public sector banks (PSBs) and one general insurance
business as part of the Budget 2021-22.

The Core Group of Secretaries on Disinvestment may explore privatising the Central
Bank of India, the Indian Overseas Bank, the Bank of Maharashtra, and the Bank of
India. State-controlled commercial banks in which the government owns majority
stake dominate India’s financial landscape, accounting for two-thirds of the
outstanding loans. Successive governments have struggled to stop the PSBs from
bleeding money. In the past 12 years, more than 3.8 trillion rupees ($52 billion) of tax-
payers money have gone into keeping them afloat, writes Tamal Bandyopadhyay in
Pandemonium: The Great Indian Banking Tragedy. Privatisation has been on the cards
for some time. But it has been politically challenging as employee unions oppose the
move and the PSBs are widely seen as filling a vacuum left by private lenders.PSBs
have also been hurt by the more tech-savvy private banks that are now capturing a
bigger share of the deposits.

CONCLUSION:

Based on historic data and examples of the past, privatization has led to better services
by banks. Hence, to conclude, Bank Privatization will ultimately be beneficial for the
public at large.