BCom 3rd Year Operations Conflicting Pressure Before Nationalization Study Material Notes

BCom 3rd Year Operations Conflicting Pressure Before Nationalization Study Material Notes:  Operations of Inflicting Pressure Before Nationalization  Operations of Conflicting Pressure After Bank Nationalization Exercise Questions  Long Answer Questions Short Answer Questions Multiple Correct Options ( Most Important Notes For BCom 3rd Year Students )

BCom 3rd Year Nature Importance Financial Money Study Material notes in Hindi

OPERATIONS OF CONFLICTING PRESSURE BEFORE AND AFTER BANK NATIONALIZATION

The nationalization of banks refers to the transferring of management, operation and control under the authority of the government. On 19th July, 1969 14 such banks which had deposits more than 50 crores were nationalised by an ordinance. State Bank of India and its associate banks were already nationalized and they had an important place in the banking system of the country. After the nationalization of 14 banks, out of 73 scheduled banks, 22 banks including State Bank of India and its associate banks came under the authority of the government. Again 6 such banks which had deposits more than 200 crore were nationalised on 15th April, 1980. After the nationalisation of these 6 banks the number of nationalised banks excluding SBI and its associates became 20. But on 4th September, 1993 the government merged New Bank of India with Punjab National Bank. Consequently the number of nationalised banks remained 19 excluding State Bank of India and its associate banks. Again on 11th October, 2004 IDBI was included in the list of public sector banks and the number reached to be 20.

OPERATIONS OF CONFLICTING PRESSURE BEFORE NATIONALISATION

The deposits with banks increased by about 5 times between March 1951 and March 1969. The resources of banks got expanded and with it their income also increased. Many control and prohibitions were imposed on banks under the Indian banking Act to give a proper direction to the banking development. RBI also strengthened its prohibition and control on banks using its authorities.

But despite all these efforts it was not possible to check the unwanted tendencies in Indian Banking System. There often rose questions whether it was proper to allow the huge amount of wealth concerned to banks stay in private hands. Due to this question there was increase in conflicting pressure related to operations of banks.

Before the nationalisation the conflicting on the operations of banks was as follows:

(1) Monopoly Tendency : It was expected from banks that their work should be in the interest of the nation and for the public welfare but it could not be so. It was stated in the Monopoly Committee Report, Prof. Mazari’s report on Industrial licensing and the report of Suvilam Dutta Committee that big traders and major bankers are connected with each other through their mutual deci. sion and their collation is harmful for the economy.

(2) Improper Utilisation of Banking Resources : While distributing credit by banks the selection of priority should be done in such a way that it can Toad to a balanced development of the economy. But before nationalisation, the maximum flow of credit was towards the sector of trade and industries due to strong hold of big traders on banks. By the end of March, 1967, the share of banks was about 84 per cent. This is created a situation of imbalance in the economy of the country.

(3) Ignorance of Agriculture Sector : India is pre-dominantly an agricultural country. The majority of its population depends on agriculture. So there cannot be development of the country so long as there is no development of agriculture but the economic condition of Indian farmers is not strong. In this situation, it is expected from banks that they should give sufficient loan to the agricultural sector to strengthen it but before nationalisation the contribution of banks to this sector was next to nothing. For example, credit distributed in the agricultural sector in March 1967 was only 2.1 per cent of total credit.

(4) Ignorance of Social Uplift: It was major problem before the country after independence to bring improvement in the standard of living of the weak and poor people. For the solution of this problem it was expected from financial institutions like banks that it should be a partner in the solution of this national problem. But without caring for it, financial institutions showed interest in providing financial assistance to elite class of the society. Besides, it has also been a charge against banks that they have been using their funds for speculation, hoarding, profiteering etc.

(5) Unbalanced Development: The majority of the population of the country resides in villages but before nationalisation the rural and semi urban areas were neglected and the expansion of branches was done only in cities and metropolies. Consequently, the bigger part of population remained devoid of banking facilities. There was crowding of branches of various banks in some cities. As a result, there was unbalanced development of the economy. So the pressure related to bring change in the policy of banking operation and branch expansion was on the government before the nationalisation.

(6) Managerial Disqualification : Before the nationalisation, the managerial responsibility of bank was mostly in the hands of incapable and inexperienced persons. These managers often had relationships with other companies or institutions. Their main objective was to use banking resources for their own interest even if it violated banking principles. For the lacking of proper training of banking staff they laid stress on experimentation in banking operations. This brought pressure of improvement in job skills on banks.

(7) Insufficient Investment in Government Securities : if the money of the depositors is invested in government securities they often have more faith on banks and they consider their deposit to be safe, but before the nationalisation the investment of banks in government securities decreased continuously. For example: the investment of banks in government securities was 34.5 per cent in 1956 which reduced to be 24.3 per cent in march in 1969. The resources of banks were increasing but the government was not getting sufficient cooperation from banks in fulfilling its programs of economic development. So the banks had the pressure of improving their investment policy.

It is clear from the above explanation that on the one hand the government kept on trying to bring banks in the periferi of social responsibilities and on the other the commercial banks continued neglecting their principles and avoiding their social responsibilities. So, the banking system was under various pressures before nationalisation. Finally 14 major commercial banks were nationalised in 1969 to establish control on these.

OPERATIONS OF CONFLICTING PRESSURE AFTER

BANK NATIONALISATION Improvement in banking system was visible after their nationalisation. There was expansion of branches in rural areas along with the urban areas. Banks were considered very useful with the view of wide ranging improvements in the economy. After this only, 6 more banks were nationalised in the second stage in 1980.

The main objectives of banks in 1969 were as follows:

(1) Winning the faith of people and collecting their savings to use in the development of the country on the basis of priorities.

(2) Expanding the branches in all parts of the country and connecting more and more people with banking services.

(3) Controlling the use of bank loans for speculation and non-productive objectives.

(4) Proper training to bank staff and providing services on proper conditions.

(5) Meeting the requirements of legal loans of the trade and industrial sector.

(6) Ending the ownership of a few people on the banking sector.

(7) Promoting the pace of development of the economy.

(8) Arranging credit for agriculture, small-scale industries and export.

(9) Transparency in the banking sector.

(10) Eliminating the distance between the society and the bank.

There was no proper improvement in the banking sector even after the nationalisation of banks. The principles of healthy banking were abandoned due to which the nationalisation was opposed even after it took place. The functional pressures rising after the nationalisation of banks are as follows:

(1) Political Decision : It is said that there had been two section in the ruling congress party at the time of nationalisation of banks. So, it is supposed that the nationalisation of banks was not an economic decision but a political decision.

(2) Influences of Politicians : It was speculated that the dominance of politicians on the banking system will increase after the nationalisation of banks and consequently the policies of the banks will keep changing according to the whims of ruling party. This will have bad impact on the economy of the country.

(3) Decrease in the Efficiency : It was speculated that banks would develop the feeling of national interest and public betterment but in practice there did not come in the work culture of bank employees. Instead of customer service there was customer harassment and due to it the banking ombudsman had to be appointed. There is pressure of improvement in work culture of banke after the nationalisation.

(4) Loan to Priority Sector : It is a pressure on the banks after nationalisation that it should provide finance to the poor, weak, landless la! rers. artisans, small entrepreneurs and marginal farmers timely at subsidizite.

(5) Insufficient Fund for Planning : Five Years plans are prepared by the government after every five year for the development of the country. It was expected from the banks after nationalisation that they would provide full cooperation to achieve the objectives of five years plans but such cooperation could not be provided on full scale. It is a pressure of government on banks that they should provide finance to the society according to government schemes.

(6) Regional Inequality : It is true that there has been expansion of branches after the nationalisation but the regional disparities still exists. Inequalities are observed in the distribution of bank branches in various states and population per bank offices in them. Banks have the pressure of eliminating this inequality.

Many committees were formed from time to time to suggest the solutions of the pressures related to the improvement in the operations of banks after the nationalisation but these reforms cannot be termed as sufficient. The banks still face the pressure of developing a strong banking system.

EXERCISE QUESTIONS AND

Long Answer type questions

1. What are the operations of conflicting pressure before nationalisation ?

2. What are the operations of conflicting pressure after nationalisation ?

Short Answer type questions

1 What do you mean by nationalisation of banks ?

2. What were the objects of bank nationalisation ?

III. Multiple choise type questions 2018 Choose the correct option :

1 How many banks were nationalised in the first stage ?

(a) 7

(b) 14

(c) 19

(d) 20

2. How many banks were nationalised in the second stage ?

(a) 2

(b) 5

(c) 6

(d) 10

3. With which banks was New Bank of India merged ?

(a) State Bank of India

(b) Punjab National Bank

(c) Bank of India

(d) Bank of Baroda

4. IDBI Bank is Wants

(a) Public Sector Bank –

(b) Private Bank

(c) Cooperative Committee

(d) Regional Rural Bank

(Ans. 1. (b), 2.(c), 3. (b), 4. (a)