Page 26 - Banking Finance May 2020

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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:
backdrop for nationalisation of Banks.
A working group on priority sector lending was formed under the chairmanship
In the words of the Late Prime Minister of Dr. K.S. Krishnaswami. On his recommendations, in 1980, RBI issued directives
Smt. Indira Gandhi during her Lok
to Banks regarding priority sector lending. The directives included
Sabha speech on 29th July 1969
Priority sector lending should be 40 percent of total bank advances.
"Purpose of nationalization is to
promote rapid growth in agriculture, Out of priority sector lending 40 percent should go to agriculture.
small industries and export, to 50 percent of direct lending to agriculture should go to weaker section in
encourage new entrepreneurs and to agriculture and allied activities.
develop all backward areas".
12 percent of bank credit should go to exporters.
Branch, Deposit and Public Sector Banks took an active part in Priority Sector lending and were
Credit Expansion: instrumental in achieving majority of the targets set by RBI. The loan portfolio
of these sectors has grown exponentially as illustrated in table 1.
Earlier, branches were concentrated in
urban and metropolitan areas but after (In crores)
nationalisation, banks expanded their S.No Priority sector June June March March March
branch network at a very rapid pace. 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:
unorganised prior to nationalisation.
At the time of nationalization, the then prime minister pointed out 'An institution
Branch Expansion of Public Sector
such as banking has necessarily to be inspired by a large social purpose and has
Banks also helped in deposit
to sub serve national priorities and objectives'. PSBs were not only doing Priority
mobilisation.
sector lending, they were also used by the Government for social and poverty
As per the RBI report dated alleviation programme. Banks were involved in two types of social banking (i)
Non lending social activities and (ii) lending social activities. Non lending banking
30.06.2011, deposit growth of all
schedule commercial banks increased 7 social activities included mobilization of rural deposit, expansion of branches in
rural areas etc. and lending activities included activities financed by Commercial
times during 1951-1971, 33 times
banks. The Government launched many schemes and some of the schemes
during 1971-1991 and 23 times during
1991-2010. The growth of deposits envisaged by the Government and put in place through PSBs are the following:
Differential Interest Rate (DRI):- Banks were asked to give loans to below
between 1971-1991, is mainly
attributed to the PSBs and their branch poverty line customers at concessional interest rate of 4 percent.
expansion. Integrated Rural Development Programme (IRDP): This programme was

26 | 2020 | MAY | BANKING FINANCE