These products were then black marketed resulting in huge profits to business houses and great hardship to people. The primary aim of bank nationalization was to ensure that deposits of the people of India remained under the control of government of India and was not used by business houses for exploiting the people and increasing their profit.
2. Equitable Growth
Equitable growth has been one of the goals of the Indian Government. There was a need of funds for development of agriculture, small and village industries. Private banks do not like to lend to small businesses and farmers as these operations are less profitable and more risky. Hence nationalization of private banks was essential.
3. Controlling Monopolies of Business Houses
Banks owned by business houses were used by the business houses to increase their profits. Loans were selectively given to serve their business interest while stifling competition.
4. Expansion of Banking to Rural India
Private Banks were mostly located at areas of commercial interest. 70 percent of people in rural areas do not have access to banks. It was necessary to spread banking across the country. Nationalization of was the only way this could be achieved.
5. Reducing Regional Imbalance: In a country like India where we have a urban-rural divide and more developed and less developed regions; it was necessary for banks to go in the rural areas and less developed regions like the North East where the banking facilities were not available. Thus bank nationalization was necessary to reduce these regional imbalances.
6. Priority Sector Lending: In India, the agriculture sector and its allied activities were the largest contributor to the national income. Thus these were labeled as the priority sectors. But unfortunately they were deprived of their due share in the credit. Nationalisation was urgently needed for catering funds to them.
Why Do We Need Corporate Houses to Have their Own Banks?
Nationalized banks are not without shortcomings. There was lack of competition, lack of motivation in staff, lack of accountability and inadequate technological upgradation. But most of that has changed. Opening up the banking sector to foreign banks and private Indian banks like ICICI Bank, Kotak Mahindra Bank, HDFC Bank, AXIS Bank, etc., has increased competition in the banking sector and made banking in India competitive.
The dangers of business houses owning banks and misusing public deposits for financing their operations to create monopolies, manipulating markets and profiteering still exists. Banks in the developed economies are not owned by business houses. In fact, there are legislations that prohibit business houses from owning banks. The World Bank has warned the Indian Government about the dangers of their proposed misadventure.
So why has our Prime Minister, Finance Minister and the Congress Party going to undo the farsighted action of its most distinguished leader? Why has the Indian Government passed the Banking amendment Bill in spite of the opposition of the Reserve Bank to the measure? Has the Finance Ministry of the Government of India shifted from the South Block in Delhi to the offices of Reliance Industries?
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