Page 149 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Indian Financial System

Notes 2. Unit banking: Under this method, the banking is carried out through a single office
confirmed to a particular area.
3. Correspondent banking: This is a system under which banks make arrangement for banking
with other banks in the country or with overseas banks.

8.4 Nationalization of Banks in India

By the 1960s, the Indian banking industry had become an important tool to facilitate the
development of the Indian economy. At the same time, it had emerged as a large employer, and
a debate had ensued about the possibility to nationalize the banking industry. Indira Gandhi,
the then Prime Minister of India expressed the intention of the GOI in the annual conference of
the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation."
The paper was received with positive enthusiasm. Thereafter, her move was swift and sudden,
and the GOI issued an ordinance and nationalized the 14 largest commercial banks with effect
from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described
the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance,
the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill,
and it received the presidential approval on 9 August 1969.
A second dose of nationalization of six more commercial banks followed in 1980. The stated
reason for the nationalization was to give the government more control of credit delivery. With
the second dose of nationalization, the GOI controlled around 91% of the banking business of
India. Later on, in the year 1993, the government merged New Bank of India with Punjab
National Bank. It was the only merger between nationalized banks and resulted in the reduction
of the number of nationalized banks from 20 to 19. After this, until the 1990s, the nationalized
banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

Self Assessment

Fill in the blanks:
1. …………………….. act as a conduit for the transfer of resources from net savers to net
borrowers.

2. ………………………. can also refer to a bank or a division of a bank that mostly deals with
deposits and loans from corporations or large businesses.
3. Commercial banks engage in ………………….. by overdraft, installment, loan, or other
means of loans.
4. A ……………………….. is a loan in which the borrower pledges some asset collateral for
the loan.
5. A mortgage loan is a very common type of ……………. instrument, used to purchase real
estate.

6. Unsecured loans are monetary loans that are ……………….. against the borrowers' assets.
7. ……………….. are formed under the cooperative system and are largely operative in rural
and agrarian sector.

8. Under ………………….. method a single bank does the banking through a network of
branches in various parts of the country.
9. ………………………… is a system under which banks make arrangement for banking
with other banks in the country or with overseas banks.

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