THREE DECADES OF
BANK NATIONALIZATION
Tapan Kumar Bhattacharya
*
The public sector
banks (PSBs) have reason to rejoice. As per newspaper reports
the combined profit of PSBs in the last fiscal would be around
Rs. 8,000 crore.The increase is more than 100 per cent. Their
profits have translated a return on assets of about 0.75 per cent
which was 0.50 per cent in 2000-01. Even the position of three
weak banks has considerably improved. The Indian Bank has reported
a net profit of Rs. 33 crore for the first time in six years.
The net profit of UBI skyrocketed by 600 per cent from Rs. 19
crore in 2000-01 to Rs. 129 crore in 2001-02. UCO Bank has also
not lagged behind. Their net profit galloped by 400 per cent from
Rs. 33 crore in 2000-01 to Rs. 165 crore in 2001-02. The stigma
of ‘weak bank’ has been removed from UCO and UBI and their status
has been elevated.
Public sector
banks have covered a long distance. More than three decades have
passed since 19th
July 1969 when fourteen Indian banks with deposits of more than
Rs. 50 crore were nationalized. A new era started and resources,
which were locked for the private sector for their own business
use, were freed for the common people. Again on April 15, 1980
six more banks with deposits of not less than Rs.200 crore were
nationalized. The number of PSBs rose to 28. Subsequently, in
1993 with the merger of the then New Bank of India with the Punjab
National Bank, the number of PSBs came down to 27.
The initial emphasis
was on the spread of branches in every nook and corner of the
country. The achievement was incredible. The branch network of
commercial banks increased from 8,261 in June 1969 to 65,521 in
March 2000. The population coverage per branch office decreased
from 65,000 in 1969 to 15,000 till date. As compared with 1969
and that of September 2001, deposits increased from Rs. 4,822
crore to Rs. 10,11,461 and credit flow from Rs. 3,467 crore to
Rs. 5,67,707 crore.
At the time of
nationalisation the priority sector concept was introduced by
bringing agriculture, small scale industry, retail trade, small
business and small transport operators under its fold. The list,
however, widened with the passage of time. It was made mandatory
for banks to provide 40 per cent of their net credit to this sector
so that they too were covered by the banks’ funds for their economic
uplift. Banks were actively involved in poverty alleviation and
employment generation programmes. It was also made mandatory for
the banks to provide 18 per cent of their net credit to the agricultural
sector to free farmers from the clutches of the money lenders
besides making funds available for agricultural development. Policy
guidelines yielded results. The agricultural credit increased
from Rs. 162 crore (5.4 per cent) in 1969 to Rs. 4,107 (16.5 per
cent) in March 2000 and during the same period credit to small
scale industry increased from Rs. 257 crore (8.5 per cent) to
Rs. 43,560 crore (17.6 per cent) and the credit for priority sector
increased from Rs. 441 crore (16.4 per cent) to Rs. 11,5,267 crore
(42.7 per cent). Enhanced bank credit to the farm sector became
instrumental for the success of green revolution and increase
of foodgrain production in the country.
When economic
reforms hit the world, India was not far behind. Along with the
economic reforms banking sector reforms also set in. The recommendations
of the Narasimham Committee initiated first generation reforms
in 1991 with the introduction of prudential recommendations of
the Narasimham Committee in 1998 became the road map for the second
generation reforms in the banking industry. Interest rates were
deregulated and the banks were allowed to fix their own rates
both for deposits and lending, save few exceptions. As precursor
to liberalisation, statutory liquidity ratio (SLR) and cash reserve
ratio (CRR) were reduced considerably from 38.5 per cent and 15
per cent of early nineties to the present level of 25 per cent
and 5 per cent respectively.
Though all these
measures made the PSBs comfortable, they were saddled with huge
non- performing assets (NPA), the result of implementation of
prudential norms and the net effect was that they incurred a huge
loss of Rs. 3,293 crore in 1992-93 and again Rs. 4,349 crore in
1993-94 though they could recover their position and earn meagre
profit of Rs. 1,116 crore in the next year, i.e. 1994-95. The
position of some of the banks became alarming due to huge losses
incurred by them and the Government, being the owner of the banks,
rightly came forward to rescue them with capital support. Between
1992-93 and 1998-99, the Government provided capital support to
the PSBs to the tune of Rs. 20.45 thousand crore. Subsequently,
till 2000-01 as many as 12 PSBs raised Rs. 6,400 crore from the
market.
Public sector
banks boast of about 77 per cent of market share in deposits and
73 per cent in advances. Though their market share has declined
to some extent in recent years due to emergence of new private
sector banks and some foreign banks, they still occupy the pivotal
position in the country’s banking topography. The criticisms that
PSBs failed to generate adequate profit in the era of nationalisation
does not hold good as profitability was not the objective set
for by the management of these banks at that time. The principal
objective of social banking has been fruitfully accomplished.
When liberalisation came in the nineties, PSBs soon recovered
after an initial setback. Their net profit, as percentage of assets,
increased from (-)0.07 in 1995 –96 to 0.57 in 1999-00. Capital
adequacy soared to 10.99 per cent, above the benchmark level of
9 per cent, and net NPA to net advances decreased from 9.85 per
cent in 1998-99 to 8.79 per cent in 2000-01.
PSBs have increased
in strength and some of them even returned capital to the Government.
They care for the persons even below the poverty line with a ruralbranch
network of 42.9 per cent whereas the ruralbranch network of private
banks is only around 6 per cent and the foreign banks do not have
any rural branch at all. There is, however, no room for complacence.
Under the recent VRS about one lakh employee have left the PSBs.
The need of the hour is trained manpower with competitive mind
and agility and infusion of technology to compete with private
and foreign banks.
During the last
three decades the public sector banks have increased in strength
and penetrated in all sectors of the economy. But still they have
to go a long way and adapt themselves to the changed scenario
and face greater challenge in the days ahead.
* Freelance
Writer, Kolkata
