Vinay Nair
- Aug 2, 2020
- 4 min read

In India, a Public-Sector Banking Crisis is brewing!

Updated: Aug 3, 2020

Indian banking sector was revolutionized in 1969, when former PM Indira Gandhi passed a resolution to nationalize 14 of the largest private sector banks in India. The Reserve Bank of India went on to say that this was the most important economic decision taken by the government since 1947.

Former PM Indira Gandhi is seen during a Congress parliamentary party meeting in New Delhi on July 17, 1969

The decision to nationalize banks was a result of political, social and economic factors prevailing in the country during that period.

Social Factors

The impressive achievement of agricultural credit against agricultural GDP during 1950s-1980s is on account of nationalisation of banks and introduction of RRBs which expanded the reach of formal credit in the country.

Direct Agricultural Credit as percentage of Agricultural GDP (Source: RBI Reports)

The share of credit for agriculture sector was just about 2%.

Private sector banks in India were run by prominent industrialists and they provided loans to their own facilities. Indian banks were heavily criticized for not offering credit facilities to agriculturists, small and medium enterprises. Another reason for nationalising banks was to sync the banking sector with the goals of socialism adopted by the Indian government after independence.