Nationalisation of banks in India: History and what was the need? Explained

Nationalisation of banks in India: Banks play a crucial role in the growth of economy as they deal with the money. Banks provide guarantee to keep our money safe and in return, give interest. Banks also lend money to the people, institutions and others to set up businesses and for a variety of commercial and personal activities. Therefore, banks directly contribute to the various financial aspects of our lives.

It was on July 19, 1969, when then prime minister Indira Gandhi announced the nationalisation of 14 commercial Indian banks with deposits of over Rs 50 crores.

14 banks that were nationalised banks in 1969: Allahabad Bank, Canara Bank, United Bank of India, UCO Bank, Syndicate Bank, Indian Overseas Bank, Bank of Baroda, Punjab National Bank, Bank of India, Bank of Maharashtra, Central Bank of India, Indian Bank, Dena Bank and Union Bank. In 1980, six more banks were nationalised. 

The government decided to nationalise banks to encourage businesses in order to serve better the needs of the country's economy. 

On the successful completion of 53 years of the nationalisation of banks, it is pivotal to highlight the banks' contribution to the country.

Nationalisation of banks: History

On 24 Sep 1969, to satisfy the prerequisites of foreign exchanges and agrarian requirements of the country, an establishment like National Institute of Bank Management (NIBM) was set up, according to the RBI website. 

On February 10, 1970, the Supreme Court held the Act void mainly on the grounds that it was discriminatory against the 14 banks and that the compensation proposed to be paid by Govt was not fair compensation.

A fresh Ordinance was issued on February 14 which was later replaced by the Banking Companies (Acquisition and Transfer of Undertakings ) Act, 1970.

Acknowledging the sensitive nature of the banking sector, Indira Gandhi took this step. To expose banks to thorough observation and social control private ownership was converted into public. 

Why was nationalisation of banks required? 
  
Nationalisation of banks was implemented under the Banking Companies (Acquisition and Transfer of Undertakings) Act of 1970. The ordinance came into force on 19 July 1969, " to serve better the needs of development of the economy in conformity with national policy objectives."

Citing facts from the RBI's history of Indian banking, banks were seen as playing a special role in the context of development, especially in agriculture. When India commenced its plan endeavours, the development role of banks came into focus, especially in the 60s when the Reserve Bank, in many ways, pioneered the concept and practise of using finance to catalyse development.

To alleviate social controls over banks with a view to securing a better alignment of the banking system to the needs of economic policy, India Gandhi decided to nationalise banks.