Banking system is the lifeline of
an economy. Financial interme-
diation by way of mobilizing savings and lending to enterprise
for the growth and development of an economy is present in some form in
every economy. In India, institutionalizing the banking system began with
the entry of small private banks, mostly owned initially by the princely
states. With the rise in economic activities, they began to occupy a bigger space
in financing trade and commerce, thus playing a critical role in the
development of the economy. Tracing the genesis of the Public Sector Banks
(PSBs) in India, it can be recalled that with a view to aligning the banking system
to the needs of planning and economic policy, the policy of social control
over the banking sector was adopted in 1967, which marked the beginning of
a new phase in the banking sector in India. Accordingly, the banking
system had to be reoriented to meet the socio-economic dimensions, leading to
bank nationalization.
Thus, the major structural change in the banking architecture came
with the commitment of the government to implement social control on banks
to make them realize the national goal of developing the grassroots
economy. Fourteen major banks were nationalized in 1969, and six more in
1980. With this, the major segment of the banking sector came under the
control of the government. A few other social control measures were also
implemented, such as assigning priority sector lending targets. This led to
the massive expansion of branch network to better provide banking access
to masses across the country, especially in rural areas. These
developments created a strong network of PSBs, meant to bring about a
socio-economic transformation in the society. The
penetration of PSB network helped in mobilizing the deposit resources from
the public and in stepping up credit dispensation in the hinterland. The
share of credit to agriculture, which constituted a small portion for a long
time, improved significantly with the onset of lead bank scheme and district
credit plans. However, the objective to provide credit at concessional rate led
to the administered structure of interest rates and other micro controls.
The more exciting phase of banking came with the onset of bank reforms,
transforming PSBs into dynamic, smart and tech-savvy organizations, capable
of disseminating banking services of global standards.
|
