Progress of Banking in India after nationalization (1969)
Introduction
After nationalization, the breath and scope of the Indian banking sector expanded at a rate perhaps unmatched by any other country. Indian banking has been remarkably successful at achieving mass participation. Between the time of 1969 nationalization and the present over 58,000 bank branches were opened in India. There new branches as of March 2003, had mobilized over 9 trillion Rupees in deposits; which represents; which represents the over whelming majority of deposits in Indian banks.
Before And After Nationalization
Development of banking in India came into its stride in the 60’s. Bank deposits began to increase much faster than national income. The ratio of bank deposits to national income rose from 14.7 in 1960 to 16.6 in 1969. This relatively faster growth of deposits was due to three factor mainly.
· Spread of banking habit
· Expansion of branch network which provided a service many centers which were earlier unbanked, and
· Increase in Interest on bank deposits which made them more attractive than other forms of investment.
The Growth of Branches
In the first Annual report on trend and of Banking in India for 1949, the Reserve Bank of India complained that “the developments of branch banking in the country has been lopsided and where as some areas seem to possess more than adequate banking facilities, other are undeveloped of underdeveloped from the point of view of banking business.
In 1962 an important step was taken on branch licensing. The banks were divided into three categories. That is
i. All India Banks.
ii. Large Regional banks and
iii. Small regional banks three branch expansion programmes were launched each spanning a period of about two three years.
Lead bank scheme
The gargil study group appointed in 1969 to study the organizational frame work for the implementation of social objectives the report recommended that an organized effort should be made by the banking institutions to plug the credit gaps in rural areas under this scheme, the geographical coverage of branch banking got a further impetus with special emphasis on rural areas.
Promotional Agencies
They confined their operations largely to a few sectors such as industry and trade. Agriculture, small scale industries etc… which constitute the foundation of our economy, by and large, were not able to receive the desired financial support. The cooperative banks, which were entrusted with the task of looking after the credit requirements of the agricultural sector, did not fully succeed.
Credit to Priority Sectors
The first operationally significant step taken by the governments after nationalization, was the identification of certain sectors, namely agriculture, small scale industries, retail trade, small business, road and water transport operators, self employed and professionals, exports, and educations, as priority sectors which were to be given loans at concessional terms. Credit allocation was deliberately changed in favour of these sectors.
Assets and Liabilities
Commercial banks apart from providing a vital service, are business enterprises and should therefore conduct their affairs in such a manner as to conform to efficient business norms, both in collecting funds from different sources of funds are deposits, borrowing, profits, etc… The avenues for utilizing these funds are loans and advances and investments in securities etc…
The source and use of funds need to be such as to keep the banks liquid and profitable. Unlike the non-banking institutions, the bankers ought to give more attention to these two conflicting aspects of business viz liquidity and profitability because of the special nature of the deposits and the advances.
