Nationalisation of Banks in India

In this article, we will learn What is the Nationalization of Banks? Why was the Nationalization needed? How many banks were nationalized in India and when and how the nationalization took place? We will also understand the reasons behind nationalization of banks in India.

Before we go into Nationalization of banks in India, we must know a few brief introductions of History of Banking in India. In the 18th century, three banks were established in India which are given below.

Bank of Calcutta (1806)

Bank of Bombay (1840)

Bank of Madras (1847)

These banks were known as The Presidency Banks and later on, these Presidency Banks were renamed to Imperial Bank of India in 1921. Further, this Imperial Bank of India converted to present State Bank of India. To understand nationalization of banks this short history of banking of India was necessary. To know detail explanation of History of Banking in India follows the link below.

Nationalization of Banks or any private organisation or entity may be defined as “ Whenever a Central Government or State Government of a country take over stakes of any private banks or private organisation/ entities by investing their funds and acquire more than 50% stakes of that private entity with respect to a specific Acts, ordinance or any other types of laws.”

This process of taking over the private ownership banks or organisation to make public ownership is known as Nationalization.

Hope you would have understood the meaning and definition of nationalization. Now we will see the nationalization of banks in India and why it was needed and when it occurred in the banking history of India.

Banking reforms started immediately after independence because India was under the developing phase at that time. When it comes to Nationalization of banks in India, it became started when Reserve Bank of India was nationalized on 1st Jan 1949 by RBI Act 1949 although  RBI was the Central Bank of India. Therefore it can’t be kept in the list of nationalized bank of India.

At that time, agriculture was the major source of bread and butter for Indians and the name of banks were pointing out some or the other regions or state like Allahabad Bank, Punjab National Bank, Bank of Baroda, Andhra Bank etc. Therefore the majority of people didn’t trust banks to deposit their money. They wanted to deposit their money in the Post Office rather than in Banks.

This was the major issue for the Government of India and the Government wanted to resolve this problem as soon as possible. Thus to enhance the trust of the public in banks Government took action and nationalized Imperial Bank of India and renamed as State Bank of India in 1955 by SBI Act 1955.

But the results which Government of India expected were not satisfactory as the Government wanted to provide banking facility to rural areas, micro, small and medium-size industrial. Thus Government needed some more banks to penetrate the rural areas, therefore, Government decided to merge home-state banks which were operating in different regions with State Bank of India as a subsidiary of SBI by a special act SBI Subsidiary Act 1959.

As we knew above Imperial Bank of India was nationalized and renamed as State Bank of India in 1955. Although SBI comes under the definition of nationalized banks. But according to the official website of Reserve Bank of India SBI is kept under the different category. This is because the State Bank of India and it’s associate’s banks ( SBI Subsidiary banks) were nationalized under different laws. Thus SBI Group is governed by the SBI Act 1955 and SBI Subsidiary Bank Act 1959.

1. Central Bank of India
2. Bank of Maharashtra
3. Dena Bank
4. Punjab National Bank
5. Syndicate bank
6. Canara Bank
7. Indian Bank
8. Indian Overseas Bank
9. Bank of Baroda
10. Union Bank of India
11. Allahabad Bank
12. United Bank of India
13. UCO Bank
14. Bank of India

The list of  6 banks nationalized in 1980 is here.