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Bank nationalisation helped India, say economists

The government's banking policy has paid rich dividends over the last five decades, especially after 1969 when 14 major private banks were nationalised.

Apart from the nationalisation process, the other features of the policy include enactment of the Banking Regulation Act in 1949, creation of the first state-owned State Bank of India in 1955, and dilution of government holdings in selected public sector banks with prudential norms.

The policy has resulted in the creation of the massive network of the banking structure in the country. The major chunk of the structure was contributed by the nationalised banks, which number 27 at present.

According to bank economists, during the last 28 years of nationalisation, the branches of the public sector banks rose 800 per cent from 7,219 to 57,000, with deposits and advances taking a huge jump by 11,000 per cent and 9,000 per cent to Rs 5,035.96 billion and Rs 2,765.3 billion respectively.

Contrary to the popular belief, employee productivity has been rising in the nationalised banks over the period, the economists said.

Productivity per employee in respect of business volume (both deposits and advances) has gone up from Rs 250,000 in 1969 to Rs 4,780,000 in 1993.

Accordingly, profits of these banks went up to Rs 30 billion in 1993 as against Rs 90 million at the time of the nationalisation, they said.

These banks also contributed to the generation of employment. Their staff strength increased by 300 per cent over the period to 900,000.

The economists said the growth of the banking sector after the nationalisation was unprecedented anywhere in the world. It is particularly true of branch expansion to every nook and corner of the country. While there were hardly any branch in the rural areas in 1969, 35,000 bank branches are operating there at present.

The economists contended that in spite of opening up the banking sector to private sector, including foreign ones in the recent past, the national banks are still the driving force of the Indian economy with over 90 per cent of the country's population availing services of credits and deposits with them.

A majority of the rural and semi-urban population is not able to operate their accounts in the private banks, including foreign ones, as they are shy of opening the branches in such banks, the economists pointed out.

In view of these facts, it would be highly improper if the public sector banks are denationalised in the name of globalisation. It would benefit only the select few who would take advantage of the massive network established by these banks, depriving over 90 per cent of the population of availing the banking services.

However, there is need to take remedial measures to make these banks more efficient, they said.

UNI