The step towards state control on capital
The entire procedure of nationalisation of the banks was announced by the then prime minister of India, Miss Indira Gandhi, on 19th July 1969. This was a rivalry step of the Indian govt in the entire history of the Indian economy. It ensured the complete nationalisation of the 14 biggest private banks, resulting in government control on more than 80% of bank assets. However, the previously named Imperial Bank was already nationalised in 1955 and renamed the State Bank of India.
An Economic And Political Turmoil & Bank Nationalisation
The report submitted by the AICC in 1948 suggested that banks and insurance companies should undergo the process of nationalisation, due to which the L.I.C. (Life Insurance Corporation of India) came out in 1956. But the market didn't support at all as the economic crisis started hitting the national economy by facing war at the borders with China and Pakistan in the years 1962 and 1965, respectively. The Indian National Congress, however, stayed in power, experiencing a heavy loss of seats in 1967, along with losing powers in seven provinces by that time. The war conditions started devaluating the Indian rupee from 4.76 per USD to 7.50 per USD in 1966, which resulted in inflation. This made a critical condition, so the RBI-authority and Indian Union had been left with no option except nationalisation of the banks.
The Banking Views
Howeationalisation. But it was not the only reason behind it. There was the accusation against the private banks about their extremely low interest in case of the loan appeals regarding agricultural sectors. Those private banks, run and controlled by big giants of the Indian market during that period, used to sanction only loans for industrial purposes—looking at their profit. The bank owners used to hold shares or stakes in several other industries and so they had the least interest in agriculture during that time.
Social Control On The Step
Due to the malpractice in the loan sanction process, the Finance Minister of India of that period, Mr Morarji Deshai put out a solution to bring control over the banks from a social perspective. The amendment of Banking law in 1968 not just ordered to replace the existing directors of the banks, also made it clear that no loan will be sanctioned to those companies which were owned by the directors.
