Role of Commercial Banks and Nationalisation of Bank

 

Commercial Banks and Nationalisation of Bank

Commercial Banks

Commercial Bank can be described as a financial institution, that offers basic investment products like a savings account, current account, etc to the individuals and corporates. Along with that, it provides a range of financial services to the general public such as accepting deposits, granting loans and advances to the customers.

Role of Commercial Banks

• —Accepting Deposits
• —Lending of Funds
• —Bank as an Agent

• ◦Collecting bills, draft, cheques, etc.
• ◦Paying the insurance premium, rent, loan installments, etc.
• ◦purchasing or redeeming securities, etc. in the stock exchange
• ◦Acting as an executor, administrator, or trustee of the estate of a customer
• ◦Also, preparing income tax returns, claiming tax refunds, etc.

• —General Utility Services
• ◦Issuing traveler cheques
• ◦Offering locker facilities for keeping valuables in safe custody
• ◦Also, issuing debit cards and credit cards etc.
• —Economic role
• ◦Accelerating the Rate of Capital Formation:
• ◦Provision of Finance and Credit
• ◦Developing Entrepreneurship
• ◦Promoting Balanced Regional Development
• ◦Help to Consumers

Nationalisation of Banks

• —According to the IMF (International Monetary Fund), “Nationalisation” is defined as “government taking control over assets and over a corporation, usually by acquiring the majority stake or the whole stake in the corporation”
• —In the Indian banking scenario, most public sector banks are referred to as Nationalised Banks.
• —bank nationalization in India proposed by the then Prime Minister Late Mrs. Indira Gandhi in July 19, 1969
• —1949 : Enactment of Banking Regulation Act
• —1955 : Nationalization of SBI (now it state owned)
• —1959 : Nationalization of SBI subsidiaries
• —1961 : Insurance cover extended to deposits
• —1969 : Nationalization of 14 major banks
• —1971 : Creation of credit guarantee corporation
• —1975 : Creation of regional rural banks
• —1980 : Nationalization of 6 banks with deposits over Rs. 200 crore.
• —Now in India there are 19 (except SBI) nationalised banks

Objectives of Nationalisation

• —To give service to agriculture sector to promote agriculture production and rural development.
• —To give credit and other facilities to small entrepreneurs.
• —Ending the control of big business houses.
• —To create development professional management atmosphere in banking sector.
• —Widening banks branch network in rural and semi-urban area.
• —Mobilization of saving through bank deposits.
• —Re-orientation of credit flows.

The impact of nationalization on Indian Banking

• —40 % proportion of net bank credit to agriculture and the weaker section
• —Banks open offices in rural and semi-urban areas
• —Banks maintain a credit deposit ratio of 60% in rural and semi urban areas.
• —To monetary and credit policy, banks required to formulate a credit plan
• —Credit Authorization Scheme was introduced.
• —Lending rate structure was built up
• —Regional Rural Banks were setup to meet the credit needs of the weak section.
• —To ensure that credit given by banks were used in development plan;
• —The district credit plans and annual action plan were formulated.