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Bank Nationalization and Social Control Over Banking

Authored by - Shreya Yadav

Keywords - bank nationalization, social control, private moneylenders.


The banks being a private entity, which provided credit to the people was needed to be nationalized for the greater benefit of the people. The main focus or aim can be said to be on the poor people or farmers who needed the banks to be more rural oriented for socio-economic development. Therefore the nationalization of the banks was felt to be the need of the hour as the banks for the wholesome development of the country after Independence. Analyzing the development in the banking sector after the nationalization.


“Social control without nationalization had no meaning and nationalization without social control could be a fraud”

The high rate of interest charged by the private moneylenders was posing a difficulty for the poor farmers and laborers. The need for such regulation led to the need for social control of the banking sector by the government. The social control concept was soon analyzed and the need for nationalization of the bank was considered necessary. The concept of private banks was only helpful for the development of only specific industries and companies rather than wholesome development of the economy of India.

As around 1960 and 70s state ownership of the banks become a trend all around the globe, the prime minister and finance minister Indira Gandhi put forth deliberation for the nationalization of banks. In July 1969 around 14 banks were nationalized later on six more private banks were nationalized in 1980.

Social Control and Bank Nationalization

The concept of social control which developed in 1967 was later known as social banking which was since India needed development of all the sectors of the society, not only the urban and rich sector but also the poor and rural sector, after the independence. As well as to improve the quality of life of the people. The term social control and nationalization are not the same and can be differentiated on the fact then when nationalization happens both the ownership and control are of the government unlike the scenario in social control where the whole ownership is not of the government. Social control can be explained as a restriction on the freedom of the banks.

The need for social control led to the development of social control scheme under which:

1. The constitution of the board was to be of 51% specialized people under areas such as agriculture, accountancy, etc.

2. The national credit scheme was developed

3. Amended the Banking Regulations Act

4. Imposing restrictions on loan

5. On certain subjects take over by the government was also allowed

All this was done with the major objective of the extensive spread of the bank credit and putting major attention towards the rural sector of the economy who are poor for the upliftment. No major change was seen after the social control scheme as the banks ignored the guidelines given by the government and hence a need for bank nationalization came into the picture as for the socio-economic development of the country. If bank funds had to be channeled for rapid economic growth with social justice, there was no alternative to nationalization. The nationalization of 14 banks was done in July 1969 through the acquisition and transfer of undertaking ordinance. The banks that were nationalized in 1969 had deposits of over 50 crore rupees.

Banking Development after Nationalization

Earlier to nationalization banks were privately owned by large industries in the form of joint stocks. After the nationalization, there was a major change in the Indian banking system as the banks were now owned by the government and as well as the development of licensing policy and Lead bank scheme.

The imperial bank of India was renamed as the State Bank of India after the nationalization for the mass benefit of the people. The nationalization led to the developing more and more banks which benefited India to provide access to the majority irrespective of the fact being from an urban area or rural area. Also, deposit mobilization was a major success of bank nationalization.

For avoiding administrative pressure upon the State Bank of India the ownership was transferred to the RBI due to which the State bank of India went under massive growth and opened about 416 branches in 5 years all over the country. The spread of the nationalized banks was a boon for the country as the use of the credits and profits of the banks in national welfare. There has been development in banking after the nationalization as the financial benefits to the mistreated or abandoned sector and unemployed youth was given.


The concept of social control and bank nationalization came into existence as to the fact the bank and industries were closely linked which caused the ignorance of the industrial sector. For the development of India after independence, our government felt the need for bank nationalization for the socio-economic development as the upliftment of the rural sector majorly farmers was needed. The State Bank of India has been an accurate example of gaining sectoral benefit as well as commercial. The ownership of certain businesses was taken over by the government through the nationalization process in 1969 and again in 1980.