Bank nationalization in India

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19 july 1869, fifty-three years ago  India nationalized 14 private banks, which has helped India to emerge as one of the greatest economies in the world and it’s potential being recognized around the globe. On this note, let’s get to know how Bank nationalization was done.

History of nationalization

Bank nationalization was not a new concept for India, because on 1st January 1949 Reserve Bank of India( RBI) was nationalized firstly in India as a result of the RBI Act was passed, then the Imperial Bank of India was nationalized in 1955 and renamed as State bank of India (SBI). In addition, seven subsidiaries of SBI were formed by nationalizing seven state banks in 1959. But the 1969 nationalization, which caused maximum impact on the political and economic spectrum.  Jayaprakash Narayan called this decision of nationalization as ‘a masterstroke in political sagacity’

Our late prime minister Indira Gandhi, put up a proposal for nationalization of banks on behalf of the Central government and thereafter the Government of India started issuing an ordinance of Banking Companies (Acquisition and Transfer of Undertakings) in 1969. After the issue of ordinance Parliament enacted Banking Companies (Acquisition and Transfer of Undertakings) act.which results, few banks were nationalized like- Bank of India,Allahabad bank, Bank of Baroda,canara bank, Bank of Maharashtra, Punjab National Bank,  Central Bank of India,UCO Bank, United Bank of India,Dena Bank, Syndicate Bank, Indian Overseas Bank,  Indian Bank, Union Bank

Six more private sector banks had also nationalized on 15th April 1980, those had time liabilities of not less than Rs. 200 crores each thereby extending further public control over the banking sector. The six Banks like Oriental Bank of Commerce, Punjab and Sind Bank, Andhra Bank, Corporation Bank, New Bank of India and Vijaya Bank got nationalized in the second round.The government controlled approx. 91% of the banking business of the country with the second round nationalization.

indira gandhi

What was the need for nationalization?

The need for nationalization of banks in India was felt due to many reasons. They are

  • The partition of India in 1947 adversely affected the banking activities (especially in Punjab and West Bengal). 
  •  To provide huge help to the big businesses and massive industries functioning in the country.
  •  In addition to that, the agriculture sector which is the most important contributor to the economy, then the exports sector, and the small scale industries also needed financial guidance in order to pace up.
  • Government believed the ownership of the Bank by the public sector will give confidence to the customers. 
  • Before nationalization of banks credit was concentrated in a few hands and No person except big industrialists could get loans and advances. This neglected the other smaller industrialists due to industrial monopoly. Then, commercial banks were nationalized to curb these monopolizing tendencies.

Effects of nationalization

14 banks nationalized

 Many economists believe that nationalization of banks was the single-most-important economic policy decision taken by any government after 1947. Which improved The efficiency of the banking system in india. The impact of this nationalization is considered, even more than the economic reforms of 1991. Both private and public were allowed to function independently of each other. The 53rd anniversary of the nationalization of banks can be a good occasion to systematically analyze the current performance of the PSBs and the necessary steps can be taken to improve the banking sector.


Today,The banking system has proved to be a significant asset to India’s economic growth and development. At present, the banking system of India has reached even to the remote corners of the country. So,We must not make haste in going for the privatization of banks. It must focus on comprehensive governance reforms, creating a free market and resolution of NPAs. so that investment can be reinvigorated and the wheels of the economy can again get back on track.

Read more : What is Stock Market?

Check your knowledge

Bank of India, Allahabad bank, Bank of Baroda, Canara bank, Bank of Maharashtra, Punjab National Bank,  Central Bank of India, UCO Bank, United Bank of India,Dena Bank, Syndicate Bank, Indian Overseas Bank,  Indian Bank, Union Bank

Reserve Bank of India. On 1st january 1949

The efficiency of banking system in india improved due to nationalization


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