2.1.3.1. Public Sector Banks

These are those banks in which the majority ownership is with government. Majority ownership means shareholding of >51%. All the PSBs were not started by the government of India. Some banks in the hands of private sector were nationalized and made public sector banks.

♤ State bank group – It means State Bank of India and its associates. SBI is the largest Public sector bank in the country. Previously major part of SBI’s share was held by RBI. But to endow RBI with only regulatory functions, its shares were transferred to the Government of India.

o Eight banks of erstwhile princely states were brought under SBI as its associates:

 State Bank of Bikaner – merged with State Bank of Jaipur later

 State Bank of Jaipur

 State Bank of Hyderabad

 State Bank of Mysore

 State Bank of Travancore

 State Bank of Indore

 State Bank of Patiala

 State Bank of Saurashtra – merged with SBI later

o Now all associates have been merged under one consolidated SBI and with this its market share has been increased to 22% from 17%. It would improve the economies of scale, better management of liquidity, technological know-how, quality of products, professional standards. It would also lead to diversification of customers and assets, international recognition, improved customer service etc.

o However, there are chances that it could lead to losing regional focus.

♤ Other nationalized banks – The nationalization was carried out in two phases in 1969 and then 1980. The total nationalised banks in the country are 19. Some examples are – IDBI, Indian bank, Dena Bank etc. Therefore, total number of Public sector commercial banks are (1+6+19) = 26.

Before Nationalization kicked in, several sectors of the economy such as agriculture, small- scale industries and weaker sections of the society were relatively ignored by the banking system of the country. For example, the agricultural sector only received 2.1% of the total credit as it stood in March 1967 compared to a humungous 64% for the industry. The banking facilities were earlier concentrated mainly in the urban areas. Though there were some banks in the rural areas, they were mainly for deposits and the money was used to lend in the urban areas. Even in the urban areas, the banking facilities were enjoyed by the rich people. The banks were mainly owned by industrialists and they used these banks to mobilise deposits of people and themselves got a loan from these banks.

The Government of India had, therefore, to impose some control over banks with a view to prevent monopolistic trends, concentration of economic power and misuse of economic resources. Thus the basic goal of social control was to achieve the social ends without taking over the banks into public ownership.

Some of the objectives of nationalization of the banks in 1980 were:

♤ To mobilize savings of people to the maximum possible and to utilize them for productive purpose.

♤ To ensure that the banking operations are guided by a larger social purpose and are subject to close public regulations;

♤ To ensure that the legitimate credit needs of private sector industry and trade, big and small, are met;

♤ To ensure the needs of the productive sector and in particular, agriculture, small scale industry, self-employed professionals are met;

♤ To actively foster the growth of the new and progressive class of entrepreneurs and create fresh opportunities for hitherto neglected and backward areas in different parts of the country; and

♤ To curb the use of bank credit for speculative and for other unproductive purposes. Since the nationalization some of the impacts observed include:

o branch expansion to areas other than the major urban centers of the country,

o growth of farm credit

o finance provided to small scale industry has increased

o increased growth of deposits

o credit to weaker sections has gone up.