Economic Interest 01:- Nationalization of Banks 1969 "अशोभनीय, अनुचित, अकारण,आवश्यक"
History:- Events leading to nationalization of banks
A) Economic Reason
1) In 1955, The Imperial Bank Of India was renamed as State Bank Of India. In 1951, there were more than 400 commercial banks who worked under the private sector. More than 360 banks failed between 1947 - 1955 at the rate of 40 banks per year. This damaged people's confidence in the banking system.
2) Imbalance in the Banking system concerning geography. Most of the banks were present in Maharashtra and Gujrat, on the other hand, very few banks were present in South, North, and the East.
3) Many banks avoided giving loans to agriculture and industries. Loans were mostly given for trade.
B)Political Reason
In 1963, Morarji Desai, the then finance minister of India under Jawaharlal Nehru launched a massive bank consolidation drive. It brought the number of banks from 328 in 1960 to 68 in 1965.{Similar events took place in recent past, Dena Bank and Vijaya Bank were merged with Bank Of Baroda.}
After Jawaharlal Nehru, Lal Bahadur Shastriji became Prime Minister. Unfortunately due to his mysterious death in Tashkent power was handed over to Indira Gandhi. Contrary to the strong image of Indira Gandhi we have, initially, she was a very submissive and weak Prime Minister. The real power of the government was with the Syndicate leaders. Syndicate leaders were a faction within the Congress party which was lead by senior leaders like K Kamraj and Morarji Desai. Indira Gandhi was a Puppet Prime Minister who had all the responsibility but no power.
Zakir Hussain, the then President of India, died on 3rd May 1969. The Vice president, VV Giri, took over as interim president. The Syndicate leaders wanted Neelam Sanjeeva Reddy as a Presidential candidate, but Indira Gandhi wanted VV Giri to continue. Morarji Desai was Finance Minister in Indira Gandhi's government. Morarji Desai was more inclined towards right-wing with his economic policies. So Indira Gandhi decided to take big, sharp LEFT turn in her polices to alienate Morarji Desai. July 12, Indira Gandhi announced her intention of the nationalization of banks at the congress session in Bangalore. As a stand-in, President VV Giri was supposed to step down on 20th July. Thus Indira Gandhi had only 7 days to get nationalization of banks done.
A draft ordinance was prepared on July 18 and was passed the next day at 5 PM. President VV Giri promulgated it, and Indira Gandhi addressed it. Indira Gandhi took many steps to encourage left-wing politics like the abolition of Privy Purse in India, the nationalization of banks, etc. This gave Indira Gandhi the much-needed support from the Left-wing parties which proved instrumental in reducing the importance of Syndicate leaders and also helped VV Giri to win a narrow win in the presidential election. VV Giri got 50.9% vote, and Neelam Sanjiva Reddy got 49.1% vote.
Reaction of opposition
Minoo Masani a leader from Sawantrata Pary strongly opposed nationalization in the parliament. He said
" This bank Nationalization will lead to 3 evil
1) Bureaucratic Red tape & inefficiency
2) Political influence graft and corruption
3) Like all State enterprise, PSU banks will make losses."
Minoo Masani also said, "Mrs Gandhi is hoping to lay her hands on Public deposit of people and powering them in the gutter of public enterprise."
Advantages Vs Disadvantages
Advantages of Nationalization of Banks
1) More branches were established throughout the country
Disadvantages of nationalization of banks
Recently Modi government invested 3.5 lakh crore Rs in PSU banks as recapitalization to avoid the banks from collapsing. In return, banks reported a loss of more than 4.0 lakh crore Rs.
According to March 2019.
PSU banks contribute
63% of deposits
58% of Loans
85 % of bad debt
According to recent data, it is approximately
63% of deposits
58% of Loans
95 % of bad debt
No shareholder has so much money to WASTE (invest) in PSU banks as the government of India. The government is thrashing hard-earned money from taxpayers in endless pits it is investing in a loss-making project again and again. The value of HDC bank, which is approximately 6 lakh crore is more than the summation of the value of all PSU banks, including SBI. It has been tried and tested that a government enterprise is a loss-making machine.
Even a bank that faced many problems recently like Yes bank worth more than Dena Bank and Vijaya Bank.
What must Gov do?
Modi government has taken a few baby steps in the last 6 years. It has focused more on the consolidation of banks. But it is infective because what we get is 12 big bad banks instead of 21 small bad banks. The problem is that there is a significant gap between public and private banks when it comes to capital. Just like Bharat Petroleum, the Government must reduce its control in the enterprise. Moreover, it should focus on establishing the private sector in the banking sector rather than privatizing existing government banks.
E.g. Air India in the aviation sector and BSNL and MTNL in telecommunication. The aviation sector is no more dependent on Air India, similarly BSNL and MTNL in the telecommunication sector. There should be many big private banks in the banking sector. The main challenge in front of Gov Of India is that it is difficult to repeat what happened in aviation and telecommunication because the banking sector requires a lot of money.
I would like to conclude by quoting Late Atal Bihari Vajpayee that Nationalization of banks was "अशोभनीय, अनुचित, अकारण,आवश्यक". Decision.
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