Nationalisation of Banks in India, Meaning, Objective, Benefits

Nationalisation of banks in India  was an important event that reshaped India’s financial landscape. While there were several benefits of this like the financial inclusion and stronger rural credit, the process also attracted a lot of criticism due to inefficiencies and political interference. In this article, we are going to cover all about the Nationalisation of banks, its meaning, objectives, impact and significance. 

Nationalisation of Banks Meaning 

Nationalisation of Banks means the transfer of ownership and control of private banks into the hands of the government. Once nationalised, the government becomes the majority shareholder and the banks operate as public sector entities. 

Nationalisation of Banks Phases

The process of Nationalisation of Banks was conducted in multiple phases: 

1. Partial Nationalisation: The first experiment began in 1955 with the State Bank of India Act, under which three Imperial Banks were merged to form the State Bank of India (SBI). This was the first public sector bank in India.
2. Full-Scale Nationalisation:  Success of the initial step encouraged the government to nationalise private banks on a larger scale through the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969, and later in 1980.
   • Phase 1 (1969): 14 banks with deposits above ₹50 crores were nationalised.
   • Phase 2 (1980): 6 more banks with deposits above ₹200 crores were nationalised.

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Nationalisation of Banks Requirements and Reasons

The nationalisation of banks was done due to many economic and political developments: 

• Planned Development: Required government control over credit to support Five-Year Plans and socialist policies.
• Agricultural Credit: Agriculture received less than 2% of total bank credit despite the Green Revolution, creating the need for rural banking.
• Economic Shocks: Wars with China (1962) and Pakistan (1965), successive droughts, and food shortages pressured the economy.
• Inequality in Credit Flow: Industry’s share in bank credit doubled between 1951–1968, while rural and weaker sections were neglected.
• Wider Access: Private banks catered to urban elites, excluding rural India from banking facilities.
• Other Needs: Promoting social welfare, reducing monopolies, financial inclusion, reducing regional imbalance, and directing credit to priority sectors.

Nationalisation of Banks Benefits 

Nationalisation of Banks had the following benefits: 

• Wider Reach: Banks expanded into rural and remote areas, improving financial inclusion.
• Branch Expansion: Between 1969–1997, public bank branches rose by nearly 800%, while deposits and advances increased exponentially.
• Priority Sector Lending (PSL): Directed credit towards agriculture, MSMEs, and other under-served sectors.
• Mobilisation of Savings: Household savings were channelised into productive investments.
• Improved Credibility: Banking habits improved, and trust in the financial system grew.
• Economic Development: Banking became a tool for planned development and poverty alleviation.

Nationalised Banks in India List 

Here is a list of banks that were nationalised in India: 

• Banks of India
• Bank of Maharashtra
• Central Bank of India
• Indian Overseas Bank
• Punjab & Sindh Bank
• Bank of Baroda
• Canara Bank
• Indian Bank
• Oriental Bank of Commerce
• Punjab National Bank
• UCO Bank
• Union Bank of India