Page 44 - Banking Finance April 2020

ARTICLE

banks declined the offer. Some other Not only did the Bank deposit expand in this time, bank credit also expanded at
reasons for nationalisation of banks almost the same rate. The banks were now providing credit to the agriculture
were the 1962 war with China, 1965 sector, small industries and trade along with credit to large corporate and export
war with Pakistan and two successive houses.
years of drought that had put pressure
on public finances. This was the Priority Sector lending: A working group on priority sector lending was formed
backdrop for nationalisation of Banks. under the chairmanship of Dr. K.S. Krishnaswami. On his recommendations, in
In the words of the Late Prime Minister 1980, RBI issued directives to Banks regarding priority sector lending. The
Smt. Indira Gandhi during her Lok directives included
Sabha speech on 29th july 1969 Y Priority sector lending should be 40 percent of total bank advances.
"Purpose of nationalization is to Y Out of priority sector lending 40 percent should go to agriculture.
promote rapid growth in
Y 50 percent of direct lending to agriculture should go to weaker section in
agriculture, small industries and
agriculture and allied activities.
export, to encourage new
entrepreneurs and to develop all Y 12 percent of bank credit should go to exporters.
backward areas".
Public Sector Banks took an active part in Priority Sector lending and were
instrumental in achieving majority of the targets set by RBI. The loan portfolio
Branch, Deposit and Credit Expansion:
of these sectors has grown exponentially as illustrated in table 1.
Earlier, branches were concentrated in
(In crores)
urban and metropolitan areas but after
nationalisation, banks expanded their S. Priority sector June June March March March
branch network at a very rapid pace. No 1969 1971 2005 2009 2018
There were only 8260 branches in 1969 1 Agriculture 160 340 109917 298211 932100
out of which only 1860, i.e., 22% were
2 Small scale Industries 260 440 68000 191307 331700
rural branches. At the end of June
3 Other priority sector 20 130 125114 230565 594600
2018, there were 90821 public sector
bank branches, out of which 54598, 4 Total priority sector 440 910 307046 720083 1858400
i.e., 60.11% branches are in rural and advance
semi urban areas. This has helped in (Source: RBI Trends and progress of banking in India, 2007-08, 2017-18, 2018-
integrating the rural and urban areas. 19)
Branch expansion helped in organising
the money market in India, which was Social Banking: At the time of nationalization, the then prime minister pointed
unorganised prior to nationalisation. out 'An institution such as banking has necessarily to be inspired by a large social
Branch Expansion of Public Sector purpose and has to sub serve national priorities and objectives'. PSBs were not
Banks also helped in deposit only doing Priority sector lending, they were also used by the Government for
mobilisation. social and poverty alleviation programme. Banks were involved in two types of
social banking (i) Non lending social activities and (ii) lending social activities. Non
As per the RBI report dated lending banking social activities included mobilization of rural deposit, expansion
30.06.2011, deposit growth of all of branches in rural areas etc. and lending activities included activities financed
schedule commercial banks increased 7 by Commercial banks. The Government launched many schemes and some of
times during 1951-1971, 33 times the schemes envisaged by the Government and put in place through PSBs are
during 1971-1991 and 23 times during the following:
1991-2010. The growth of deposits Y Differential Interest Rate (DRI):- Banks were asked to give loans to below
between 1971-1991, is mainly poverty line customers at concessional interest rate of 4 percent.
attributed to the PSBs and their branch
Y Integrated Rural Development Programme (IRDP): This programme was
expansion.

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