BANARAS HINDU UNIVERSITY

FACULTY OF LAW

ASSIGNMENT OF BANKING LAW

TOPIC-Nationalisation Of Banks In India.

SUBMITTED TO:-

Dr. Anurag Agrawal

(Assistant professor)

Faculty of law

SUBMITTED BY:-

DILAWAR SINGH

[Link].B 10TH SEMESTER

ROLL NO.:-15225BLT051
ENROLMENT NO. :-374862
EMAIL:- dilawar1812@[Link]

1
 ACKNOWLEDGEMENT

It was a great pleasure for me to prepare a project in one of the most important
topic of Banking Law the while dealing with the topic “Nationalisation Of
Banks In India.” I came across many points related to it and tried my best to
express it in this project. I have made special endeavours to present the subject
matter in the simple, systematic and lucid manner. I am grateful to all those who
helped me in writing the project, without their help, it was not possible to
complete this project. I am grateful to Dr. Anurag Agrawal for giving me, to
prepare and present this topic.

Thank you

2
 INDEX

I. List Of Cases............................................................................................................... 4

II. Abbreviations.................................................................................................................5
III. Introduction.................................................................................................................6-9
IV. Nationalisation Of Banks........................................................................................10-11

V. Why Nationalisation Of Banks?...................................................................................12

VI. Objectives Behind Nationalisation Of Banks In India.................................................13

VII. The Bank Nationalisation Case...............................................................................14-17

VIII. Has Nationalisation Actually Benefitted India?......................................................18-20

IX. Demerits, Limitations - Bank Nationalisation In India………………………………21

X. Merger Of 10 Public Sector Banks In 2020………………………………………….22

XI. Conclusion....................................................................................................................23

XII. Bibliography.................................................................................................................24

3
 LIST OF CASES

➢ Rustam Cawasjee Cooper V. Union Of India

➢ A.K. Gopalan Vs The State Of Madras.

4
 ABBREVIATIONS

1. AIR All India Reporter

2. BC Banking Cases

3. [Link]. Indian Cases

4. ILR Indian Law Reports

5. NPA Non-performing assets

6. PSU Public Sector Undertaking

7. OBC Oriental Bank of Commerce

8. SBI State Bank of India

9. PNB Punjab National Bank

5
INTRODUCTION-

Without a sound and effective banking system in India it cannot have a healthy economy. The
banking system of India should not only be hassle free but it should be able to meet new
challenges posed by the technology and any other external and internal factors.

For the past three decades India’s banking system has several outstanding achievements to its
credit. The most striking is its extensive reach. It is no longer confined to only metropolitans
or cosmopolitans in India. In fact, Indian banking system has reached even to the remote
corners of the country. This is one of the main reasons of India’s growth process.

The government’s regular policy for Indian bank since 1969 has paid rich dividends with the
nationalization of 14 major private banks of India.

Not long ago, an account holder had to wait for hours at the bank counters for getting a draft
or for withdrawing his own money. Today, he has a choice. Gone are days when the most
efficient bank transferred money from one branch to other in two days. Now it is simple as
instant messaging or dials a pizza. Money has become the order of the day.

The first bank in India, though conservative, was established in 1786. From 1786 till today,
the journey of Indian Banking System can be segregated into three distinct phases. They are
as mentioned below:

• Early phase from 1786 to 1969 of Indian Banks.

• Nationalisation of Indian Banks and up to 1991 prior to Indian banking sector

Reforms.

• New phase of Indian Banking System with the advent of Indian Financial & Banking
Sector Reforms after 1991.

• To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and
Phase III.

6
Phase-I-
The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and
Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay
(1840) and Bank of Madras (1843) as independent units and called it Presidency Banks.
These three banks were amalgamated in 1920 and Imperial Bank of India was established
which started as private shareholders banks, mostly Europeans shareholders.

In 1865 Allahabad Bank was established and first time exclusively by Indians,
Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906
and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank,
and Bank of Mysore were set up. Reserve Bank of India came in 1935.

During the first phase the growth was very slow and banks also experienced periodic failures
between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline
the functioning and activities of commercial banks, the Government of India came up with
The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949
as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with
extensive powers for the supervision of banking in India as the Central Banking Authority.
During those days, public has lesser confidence in the banks. As an aftermath deposit
mobilisation was slow. Abreast of it the savings bank facility provided by the Postal
department was comparatively safer. Moreover, funds were largely given to traders.

7
Phase-II-
Government took major steps in this Indian Banking Sector Reform after independence.
In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a large
scale especially in rural and semi-urban areas. It formed State Bank of India to act as the
principal agent of RBI and to handle banking transactions of the Union and State
Governments all over the country.

Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19th July,
1969, major process of nationalisation was carried out. It was the effort of the then Prime
Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country were
nationalised.

Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980 with
seven more banks. This step brought 80% of the banking segment in India under Government
ownership.

The following are the steps taken by the Government of India to Regulate Banking
Institutions in the Country:

1949: Enactment of Banking Regulation Act.

1955: Nationalisation of State Bank of India.

1959: Nationalisation of SBI subsidiaries.

1961: Insurance cover extended to deposits.

1969: Nationalisation of 14 major banks.

1971: Creation of credit guarantee corporation.

1975: Creation of regional rural banks.

1980: Nationalisation of seven banks with deposits over 200 crore.

After the nationalisation of banks, the branches of the public sector bank India rose to
approximately 800% in deposits and advances took a huge jump by 11,000%.

Banking in the sunshine of Government ownership gave the public implicit faith and
immense confidence about the sustainability of these institutions.
8
Phase-III
This phase has introduced many more products and facilities in the banking sector in its
reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up
by his name which worked for the liberalization of banking practices.

The country is flooded with foreign banks and their ATM stations. Efforts are being put to
give a satisfactory service to customers. Phone banking and net banking is introduced. The
entire system became more convenient and swift. Time is given more importance than
money.

The financial system of India has shown a great deal of resilience. It is sheltered from any
crisis triggered by any external macroeconomics shock as other East Asian Countries
suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high, the
capital account is not yet fully convertible, and banks and their customers have
limited foreign exchange exposure.

9
NATIONALISATION OF BANKS-

After independence the Government of India (GOI) adopted planned economic development
for the country (India). Accordingly, five year plans came into existence since 1951. This
economic planning basically aimed at social ownership of the means of production. However,
commercial banks were in the private sector those days. In 1950-51 there were 430
commercial banks. The Government of India had some social objectives of planning. These
commercial banks failed helping the government in attaining these objectives. Thus, the
government decided to nationalize 14 major commercial banks on 19th July, 1969. All
commercial banks with a deposit base over Rs.50 crores were nationalized. It was considered
that banks were controlled by business houses and thus failed in catering to the credit needs
of poor sections such as cottage industry, village industry, farmers, craft men, etc. The second
dose of nationalisation came in April 1980 when banks were nationalized.

The nationalization of banks in India took place in 1969 by Mrs. Indira Gandhi the then
prime minister. It nationalized 14 banks then. These banks were mostly owned by
businessmen and even managed by them. They are-

1. Central Bank of India

2. Bank of Maharashtra

3. Dena Bank

4. Punjab National Bank

5. Syndicate Bank

6. Canara Bank

7. Indian Bank

8. Indian Overseas Bank

9. Bank of Baroda

10. Union Bank

11. Allahabad Bank

10
 12. United Bank of India

13. UCO Bank

14. Bank of India

Before the steps of nationalization of Indian banks, only State Bank of India (SBI) was
nationalized. It took place in July 1955 under the SBI Act of 1955. Nationalization of Seven
State Banks of India (formed subsidiary) took place on 19th July, 1960.

The State Bank of India is India’s largest commercial bank and is ranked one of the top five
banks worldwide. It serves 90 million customers through a network of 9,000 branches and it
offers either directly or through subsidiaries a wide range of banking services.

The second phase of nationalization of Indian banks took place in the year 1980. Seven more
banks were nationalized with deposits over 200 Crores. Till this year, approximately 80% of
the banking segment in India was under Government ownership.

After the nationalization of banks in India, the branches of the public sector banks rose to
approximately 800% in deposits and advances took a huge jump by 11,000%.

Thus, the years in which nationalisation of banks took place were-

➢ 1948: Soon after Independence, RBI was nationalised.

➢ 1955: Nationalisation of State Bank of India.

➢ 1959: Nationalisation of SBI subsidiaries.

➢ 1969: Nationalisation of 14 major banks.

➢ 1980: Nationalisation of seven banks with deposits over 200 crores.

11
WHY NATIONALISATION OF BANKS?

The need for the nationalisation was felt mainly because private commercial banks were not
fulfilling the social and developmental goals of banking which are so essential for any
industrialising country. Despite the enactment of the Banking Regulation Act in 1949 and the
nationalisation of the largest bank, the State Bank of India, in 1955, the expansion of
commercial banking had largely excluded rural areas and small-scale borrowers.

The developmental goals of financial intermediation were not being achieved other than for
some favoured large industries and established business houses. Whereas industry’s share in
credit disbursed by commercial banks almost doubled between 1951 and 1968, from 34 per
cent to 68 per cent, agriculture received less than 2 per cent of total credit. Other key areas
such credit to exports and small-scale industries were also neglected.

The stated purpose of bank nationalisation was to ensure that credit allocation occur in
accordance with plan priorities. Nationalisation took place in two phases, with a first round in
1969 covering 14 banks followed by another in 1980 covering 7 banks. Currently there are 12
nationalised commercial banks.

Initially, the focus was on the physical extension of banking services. There is no doubt that
the achievement has been impressive by any standards. From only 8261 in June 1969, the
number of branches of commercial banks increased to 65,521 in 2000. (Indeed, they had
increased to even more, but, as we shall see, the “reforms” of the nineties caused a decline in
the number of rural branches.) The expansion of rural branches was especially noteworthy.
The population covered by a branch decreased from 65,000 in 1969 to 15,000 in 2001. There
were associated increases in both deposits and credit flow.

12
OBJECTIVES BEHIND NATIONALISATION OF BANKS IN INDIA

The nationalisation of commercial banks took place with an aim to achieve following major
objectives. They were:-

✓ Social Welfare: It was the need of the hour to direct the funds for the needy and
required sectors of the Indian economy. Sector such as agriculture, small and village
industries were in need of funds for their expansion and further economic
development.

✓ Controlling Private Monopolies: Prior to nationalisation, 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.

✓ Expansion of Banking: In a large country like India the numbers of banks existing
those days were certainly inadequate. It was necessary to spread banking across the
country. It could be done through expanding banking network (by opening new bank
branches) in the un-banked areas.

✓ Reducing Regional Imbalance: In a country like India where we have a 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 nationalisation was
justified:

✓ Priority Sector Lending: In India, the agriculture sector and its allied activities were
the largest contributor to the national income. Thus these were labelled as the priority
sectors. But unfortunately they were deprived of their due share in the credit.
Nationalisation was urgently needed for catering funds to them.

✓ Developing Banking Habits: In India more than 70% population used to stay in rural
areas. It was necessary to develop the banking habit among such a large population.

13
THE BANK NATIONALISATION CASE-

Rustam Cawasjee Cooper v. Union of India-1

Background of the case

The Indira Gandhi government in 1969 at the instance of the then Acting President M.
Hidayatullah promulgated the Banking Companies (Acquisition & Transfer of Undertaking)
Ordinance, 1969 nationalizing the 14 banks. These 14 banks were chosen on the basis that
they had deposits exceeding 50 crores. The ordinance was promulgated just two days before
the Session of Parliament. The ordinance w.e.f. 19 July 1969 broght more than 75% banking
sector under state control along with its assets, liabilities, entire paid-up-capital.

The most horrific and controversial part of the Ordinance was the second schedule it
contained. The second schedule provided that:

1. Where an amount of compensation could be fixed by an agreement; it would be

determined by such agreement

2. Where no such agreement could be reached in the provided time, the matter would be
referred to tribunal. The compensation fixed by the tribunal will be awarded after 10
years from the date when the agreement failed.

2 days later when Parliament came in session it enacted the Banking Companies (Acquisition
& Transfer of Undertaking) Act, 1969 with the same provisions as were in the Ordinance.
Therefore, Rustom Cavasjee Cooper the majority shareholder of Central Bank of India &
Bank of Baroda filed a writ petition in Supreme Court u/a 32 for the violation of his
Fundamental Rights mentioned under articles 14, 19(1)(f) & 31(2).

1
AIR 1970 SC 564

14
Issues

1. Whether a shareholder can file a petition for remedy against violation of his
fundamental rights when the company in which the shares are held is taken over.
2. Whether the Ordinance was properly promulgated.
3. Whether the Parliamentary Act was within Parliamentary Competence.
4. Whether the impugned Parliamentary Act was violative of Article 19(1)(f) & 31(2)
of Constitution of India.
5. Whether the method of ascertaining compensation was valid.

Judgment

The court delivered this landmark judgment on February 2, 1970 & speaking in 10:1
majority held that the shareholder or director cannot move to the courts for the
protection of infringement of Fundamental Right’s of the company unless it is proved
that by the impugned action his rights are also violated. The majority opinion was
written by Justice Shah for himself and on the behalf of Grover, Vaidialingam, Mitter,
Dua, Shelat, Hegde, Reddy, Sikri and Bhargava, JJ. while justice A.N. Ray wrote the
dissenting opinion.

The major findings of the majority bench were as follows:

1. The apex court overruled the 20 years law laid down by A. K. Gopalan rejecting
the mutual exclusivity theory. The court held that we cannot overlook the violation
of citizens of the nation on mere technicalities. If due to state action the
fundamental rights of a citizen are violated the court is bound to prohibit such
violation. The court by holding this laid down the Effect test and overruled
the Object test. Therefore, now the courts won’t look into the objects of the
impugned act and rather they will look into the effect of the impugned act. In case
effect of such act violates the FR’s of citizens it would be violative of Constitution
and liable to be struck down.

2. Since the Ordinance was already replaced by the act of Parliament therefore, the
court held that deciding the validity of the said impugned Ordinance is fruitless.
This discussion is relevant for academic purposes only.

15
 3. The court rejected both the Petitioner’s & Respondent’s argument on legislative
competence to acquire banking Companies. The court held that the term Property
in itself constitutes the rights, liabilities, organization etc. that accrue to the
property. The power to acquire property was held to be an independent power of
Parliament and it required no separate legislation under List II or List III.

4. The court found the impugned act in contravention of the Article 31 since the act
failed to comply with said provision. The said provision provided that the in case
any property is acquired by the government then they have to provide
compensation to the property owner. Since there was clear violation of the said
provision therefore, the court struck down the said act.

5. However, the court upheld the validity of the act in the context of Article 19(1)(f).
The court said that the act is not violative of the freedom to carry trade & business.
The justification for the said ruling that the state can always create a partial and
absolute monopoly.

6. But the court held the said act in clear violation of Article 14c since only these 14
banks were restrained from conducting banking business n the future while other
banks including the foreign banks were allowed to continue Banking in India. The
court this discrimination as a flagrant hostile discrimination.
Justice Ray’s opinion was the sole dissent in the judgment. However, he agreed with the
majority in two instances which were as follows:

1. That the said act is not in violation of Article 19(1)(f) i.e. freedom to carry trade &
occupation.

2. That the Parliament was competent to legislate on the acquisition of banking and
that the said law was valid as far as Legislative Competence is considered.
Further, he held that the Ordinance promulgation power vested within the President of India
is a subjective power that cannot be challenged in courts. However, he rejected the majority’s
opinion that the shareholder can approach the apex court for the violation of his rights which
were directed against a company i.e. a non-citizen. He also affirmed the mutual exclusivity
theory as was propounded in Gopalan judgment.

16
Aftermath of R.C. Cooper

The Parliament in order to make its position more profitable enacted the 25th Constitutional
(Amendment) Act, 1971 after the decision of R.C. Cooper that proved contrary to its
intention. Earlier the word “Compensation” in Article 31(2) was interpreted as Parliament is
liable to a just & equitable indemnification. This interpretation was further affirmed by the
apex court in Bela Bannarjee, P. Vajravelu&finally in R.C. Cooper Therefore, to negate all
these judgments and to make their intention the law, Parliament amended the Constitution by
enacting the 25th Constitutional (Amendment) Act, 1971.

25th Amendment

1. The parliament in order to clarify their stance that they are not bound to adequately
compensate the landowners amended Article 31(2) in case their property is
acquired by the state. The word “amount” was placed instead of compensation in
the provision.

2. Article 19(1)(f) was delinked from Article 31(2).

3. Article 31 C, a new provision was added to the Constitution to remove all

difficulties that
i. Articles 14, 19 & 31 are not to be applied to any law enacted under the fulfillment of
objectives laid down under Article 39(b) & 39(c).

ii. Any law to give effect to Article 39(b) & 39(c) will be immunized from court’s
intervention.

17
HAS NATIONALISATION ACTUALLY BENEFITTED INDIA?

Every coin has two sides. Hence, nationalisation too has its own pros and cons. There are
certain arguments which favour it and certain other arguments which are against it.

Arguments for Nationalisation

1. Before nationalization, the commercial banks in India used to give loan to unscrupulous
persons who used to indulge in speculation of essential commodities. Consequently, the
prices of the commodities rose very high and the economy of the country as well as the
patience of the people were taxed.

2. Some of the banks have started giving money to politicians for contesting election, under
one or the other pretext. Consequently money started playing an important role in the
elections and had it continued it would have been a serious threat to the very existence of
democracy.

3. The banks were ignoring national priorities and so the economic policies which were
mooted by the Government could not succeed. It was necessary to provide adequate finance
to the Agriculturists and to the educated unemployed. After nationalization the banks have
started working in accordance with the policies of the Government.

4. Nationalization of banks would certainly remove the concentration of economic power in

the hands of a few industrialists, who manage the joint-stock banks in their own Interest and
through them secure a great and strategic control over the national economy.

[Link] of banks would help in stabilising the price levels by eliminating artificial
scarcity of essential goods by not allowing advances in building up inventories and hoarding
as well as speculative activities and creation of artificial scarcity and by encouraging the
exploitation of bank credit for productive purposes.

[Link] nationalization would give an Impetus to banks‘ lending to priority sectors such as
agriculture. small scale industries. transport operators. retail trade. small business,
professional and self employment persons and education, which. under the influence of
tradition and vested Interests were dented adequate access to the banking system. In short,
nationalization of banks would enable the banking sector to diversify its resources for the

18
benefit of the priority sector and is required under the schemes of planned economic
development of the country.

7. Nationalization of banks would check favourable attitude of the banks towards directors by
providing credit at concessional rates for the promotion of the interests of the directors.

8. Nationalization eliminates wasteful competition and raises the efficiency of the working of
the banks.

9. Nationalisation would bring a rapid increase in the number of banking offices in rural and
semi urban areas and helped considerably in deposit mobilization to a greater extent.

10. Nationalization of banks is necessary for the furtherance of socialism and in the interest
of community.

11. If all the commercial banks are nationalized ,the Reserve Bank of India would be in a
position to implement its monetary policy more effectively.

12. Nationalisation of banks would replace the profit motive by service motive in the
functioning of the banks, thereby helping greatly in the achievement of the goal of socialism.

13. Distribution of credit by the nationalised banks would be much more efficient as it would
flow into productive and socially desirable channels, and its credit would be relatively less
costly.

14. Nationalisation would secure standardisation of banking services in the country.

15. Through public ownership and control, banks function like other public utility services by
catering to the financial needs of the common man.

19
Arguments against:-

1. Banks or any other public dealing institution if nationalized results in frustration among the
people because the institution becomes inefficient and does not bother about the public. This
may result in less deposit and loss of confidence in the banks.

2. After nationalization the commercial banks have become an effective tool in the hands of
the ruling party. The party in power forces the banks to give loan to the supporters of their
party and can also get money for contesting elections on one or the other pretext. Under such
circumstances the nationalization of the banks has gone against the interest of the common
man.

3. Only 20 banks have been nationalized and the government has justified its action by saying
that nationalization of all the banks was not necessary because they wanted the public sector
and the private sector banks to compete with each other. In fact there can be no competition
between the public sector and private sector banks as it is between public and private sector
industries because the Reserve Bank controls monetary activities of the Commercial Banks in
the country.

4. Extending loans to agriculture and small scale industries is risky and less remunerative
such loans are against the sound banking system and may weaken the economic viability of
these institutions.

5. No additional security to depositors in India can be provided through nationalization as

there is Institutions like Indian Deposit insurance and credit guarantee corporation providing
enough relief to the depositors.

6. By virtue of the control exercised by the RBI since nationalization and government
authorities, the executives and other officials of the banks are afraid to take decisions which
have naturally affected adversely and slowed down the services to the customers.

7. As to the reference to foreign countries , banks In Norway, Sweden. finland and Denmark
are in private hands and functioning efficiently.

20
DEMERITS, LIMITATIONS - BANK NATIONALISATION IN INDIA

Though the nationalisation of commercial banks was undertaken with tall objectives, in many
senses it failed in attaining them. In fact it converted many of the banking institutions in the
loss making entities. The reasons were obvious lethargic working, lack of accountability, lack
of profit motive, political interference, etc. Under this backdrop it is necessary to have a
critical look to the whole process of nationalisation in the period after bank nationalisation.

The major limitations of the bank nationalisation in India are:-

✓ Inadequate banking facilities: Even though banks have spread across the country;
still many parts of the country are unbanked, especially in the backward states such as
the Uttar Pradesh, Madhya Pradesh, Chhattisgarh and north-eastern states of India.

✓ Limited resources mobilized and allocated: The resources mobilized after the
nationalisation is not sufficient if we consider the needs of the Indian economy.
Sometimes the deposits mobilized are enough but the resource allocation is not as per
the expansions.

✓ Lowered efficiency and profits: After nationalisation banks went in the government
sector. Many times political forces pressurized them. Banking was not done on a
professional and ethical ground. It resulted into lower efficiency and poor profitability
of banks.

✓ Increased expenditure: Due to huge expansion in a branch network, large staff

administrative expenditure, trade union struggle, etc. banks expenditure increased to a
dangerous level.

✓ Political and Administrative Inference: Many public sector banks badly suffered
due to the political interference. It was seen in arranging loan meals. It ultimately
resulted in huge non-performing assets (NPA) of these banks and inefficiency.

These are several limitations faced by the banks nationalisation in India. Apart from this there
are certain other limitations as well, such as weak infrastructure, poor competitiveness, etc.

But after Economic Reform of 1991, the Indian banking industry has entered into the new
horizons of competitiveness, efficiency and productivity. It has made Indian banks more
vibrant and professional organizations, removing the bad days of bank nationalisation.
21
Merger of 10 public sector banks in 2020

Ten Public Sector Undertaking (PSU) banks will be amalgamated into four banks from, 1
April,2020. In the biggest consolidation exercise in the banking space, the government in
August 2019 had announced the merger of 10 public sector lenders into four bigger and
stronger banks. With this, the number of public sector banks in India will come down to 12
from 27 in 2017.

1) Oriental Bank of Commerce (OBC) and United Bank of India will be merged into Punjab
National Bank (PNB). After the merger, these together will form the second-largest public
sector bank in the country, after State Bank of India (SBI).

2) Syndicate Bank will be merged into Canara Bank, which will make it the fourth-largest
public sector lender.

3) Indian Bank will be merged with Allahabad Bank.

4) Union Bank of India will be merged with Andhra Bank and Corporation Bank

5) Customers, including depositors of merging banks will be treated as customers of the

banks in which these banks have been merged with effect from 1 April 2020.

6) After the merger, there will be 12 PSUs - six merged banks and six independent public
sector banks.

-Six merged banks - SBI, Bank of Baroda, Punjab National Bank, Canara Bank, Union Bank
of India, Indian Bank

-Six independent banks - Indian Overseas Bank, Uco Bank, Bank of Maharashtra, Punjab and
Sind Bank, Bank of India, Central Bank of India.

7) The Oriental Bank of Commerce and United Bank of India will operate as the branches of
the Punjab National Bank from (1 April 2020).

8) Syndicate Bank will function as the branch of Canara Bank effective 1 April 2020.

9) Similarly, all Allahabad Bank branches will be treated as branches of the Indian Bank

22
10) All branches of Andhra Bank and Corporation Bank will function as Union Bank of India
branches with effect from 1 April, 2020.

CONCLUSION-

Nationalized banks are also called the government banks in India and worked to providing
social welfare to Indian public. They were responsible for directing funds to the needy and
various sectors like agriculture and small industries for expansion as well as for economic
development.

Banks were nationalized to cater to the fund requirements by priority sectors. These sectors
are largely the agriculture sector which contributes largely to national income of the country.
Nationalized Banks in India plays a great role in controlling private monopolies to guarantee
an even contribution of credit to such sections of the society that are most desirable.
Nationalized Banks in India also help in dropping the regional disparity. India is divided into
urban and rural sectors and it is the nationalized banks that work to provide all forms of
banking facilities to the most rural areas of the country.

Nationalization is in accordance with our national policy of adopting socialistic pattern of

society. Some may say that industries which provide proper place for exploitation should
have been nationalized first. They forget that the control of the capital is necessary because it
gives power to exploit.

One legitimate criticism levelled against nationalization is that some banks were not
nationalized so that the businessmen may not have to suffer. The government argued that the
nationalized banks had the maximum deposits with them and other banks were not in a
position to influence the economy of the country. But there should be a complete control over
the banks if we want them to boost our economy. Nationalization of banks is the proper step
in the proper direction.

After independence, it is the Nationalized Banks that worked to spread banking facilities
across the underdeveloped region of the country in those days as there were insufficient
number of banks and people were deprived from banking facilities. The nationalization of
banks helped in developing banking practice among the large population of the country since
its independence.

23
BIBLIOGRAPHY-

BOOKS-

➢ Chaudhary, R.N. Banking Laws (Allahabad: Central Law Publications) 2009

➢ Shekhar, K.C. Banking Theory and Practice (Noida: Vikas Publishing House) 2011

➢ Tannan, M. L. & Jayakar, M. R., Tannan's Banking: Law and Practice in India
(Nagpur: Wadhwa and Company) 2005

ARTICLES REFERRED-

➢ Abhijit V. Banerjee, Shawn Cole, and Esther Duflo, ‘Banking Reform in India’, June
2004

➢ Narendra Jadhav, Development Aspects of Central Banking.

24