The financial system of any country consists of financial institutions, financial markets, financial instruments, financial services and financial assets. An efficient and a smooth financial system plays an important role in the nation's economic development. A well developed country will have a well organized financial Institutions. Financial Institutions are an important part of the Indian Financial System. The institutions are divided into two categories, banking and non-banking. Banks play a pivotal role in India's economy. The year 1969 was a landmark in the history of commercial banking in India. In July 1969, the government nationalized 14 major commercial banks of the country. In 1980, 6 more banks were nationalized.
The first Five Year Plan held in the 1951 accorded the development of the rural areas as the highest priority. The plan was for the time period between 1951?1956. The All India Rural Credit Survey Committee advised the government to create state partnered and state owned banks. An act was passed in the parliament in May 1955 and the State Bank of India was constituted. Later the State Bank of India Act was passed in 1959 to take over the associate banks of SBI and its subsidiaries.
The pre-nationalization period saw a lion's share in the industrial sector to the bank's credit. Large scale industries cornered a large portion of the credit and the share of small scale industries was marginal. There were many reasons for the dominance of the large scale industries in the banking sector. Many commercial banks were under the ownership and control of big industrial houses. A disturbing feature of the pre-nationalization banking policy was the negligence of agriculture sector to the bank's credit. This share hovered around 2% of the total commercial bank credit. The privately owned commercial banks were neither interested nor geared up to meet the risky and small credit requirements of the farmers. Similarly, the share of other non-industrial sectors was also very low. Since the commercial banks were under the control of big industrialists, the loanable funds of the banks were sometimes used to finance socially undesirable activities like hoarding of essential commodities.
The post-nationalization period witnessed certain drastic changes in the economy. All the leading commercial banks of the country were nationalized in the year 1969 with some objectives in mind. The objectives of nationalization were as follows:
To break the ownership and control of banks by a few business families.
To prevent concentration of wealth and economic power.
To mobilize savings of the masses from every nook and corner of the country.
To pay more attention to the priority sectors of the economy like agriculture and small scale industries, the post-nationalization period saw a remarkable expansion in the banking and financial system. The biggest achievement of nationalization was the reallocation of sectoral credit in favor of agriculture, small scale industries and exports. Within agriculture, credit for the procurement of food grains, i.e., food credit was a major thing. Other agriculture activities included poultry farming, dairy and piggery.
Certain other sectors of the economy which also received attention for credit allocation were professionals, self-employed individuals, artisans and other weaker sections of the society. Conversely, there was a sharp fall in bank credit to large scale industries. However, the share of small-scale industry registered an upward trend. Nationalization of commercial banks had many pros and cons for the economy. The government paid more attention to agriculture than industry. The country witnessed increasing numbers of bank branches in the rural areas. Branch expansion program resulted in mobilization of savings from all parts of the country.
List of some Nationalized Banks in India.
Allahabad Bank
Bank of India
Bank of Baroda
Andhra Bank
Bank of Maharashtra
Dena Bank
Corporation Bank
Canara Bank
Central Bank of India
Oriental Bank of Commerce
IDBI
Indian Bank
Indian Overseas Bank
Punjab and Sind Bank
State Bank of Patiala
Punjab National Bank
State Bank of Bikaner & Jaipur
State Bank of India
State Bank of Hyderabad
State Bank of Mysore
UCO Bank
Syndicate Bank
State Bank of Travancore
United Bank of India
Vijaya Bank
Union Bank of India