The following points highlight the top eight contribution of nationalized banks in India. The performances are: 1. Branch Expansion 2. Assistance to Priority Sectors 3. Deposit Mobilisation 4. Involvement in Development Efforts 5. Extension of Banking in Unbanked Areas 6. Supply of Credit to Programmes for Self-Employment 7. Poverty Alleviation Programmes 8. Diversification in Banking.
Performance # 1. Branch Expansion:
In order to correct imbalances in the banking system, nationalized banks set an objective to initiate a branch expansion programme particularly in unbanked and under-banked areas. As on 30th June, 2014, i.e., 45 years after nationalisation since 1969, total number of branches of public sector banks, including regional rural banks, increased from 7,015 in June 1969 to 99,777 in June 2014, which shows an increase over 1,422 per cent.
In June 2014, total number of branches of all commercial banks was 118,450. Thus the total branches of public sector banks was 84.23 per cent of all commercial banks in the country. Again, the total number of branches of nationalized banks was 59,270 in June 2014 which was about 50.0 per cent of all branches of commercial banks in the country. Of these 34.4 per cent (20,467) of the branches were located in rural areas.
Again the number of rural branches of all commercial banks increased from 1,860 in 1969 to 46,976 in 2014 which shows that rural branches as percentage of the total branches has increased from 22 per cent to 38.7 per cent during the same period.
Further, with the implementation of branch expansion programme, the national average population per bank office gradually declined from 65,000 in June 1969 to 10,215 in June 2014. This is no doubt a spectacular achievement.
Performance # 2. Assistance to Priority Sectors:
Providing credit to priority sectors like agriculture, small industry and export was another important object of nationalisation of banks in India. After nationalisation, public sector banks started to extend liberal credit facilities to the priority sectors. Total amount of credit outstanding advanced to the priority sectors has increased from Rs 441 crore in June 1969 to Rs 16,06,680 crore in March 2014.
Thus the share of the priority sectors in total bank credit has increased from 14.9 per cent in June 1969 to 35.0 per cent in March 2014.
Besides, to meet the needs of the weaker sections of the society, these commercial banks also assisted the transport operators, small businessmen, retail traders, professional and Self-employed persons and the total amount of gross bank credit to these sections has increased from Rs 23 crore in June 1969 to Rs 2,93,960 crore in March 2012.
Priority sector advances by public sector commercial banks (PSBs) also increased by Rs 16,02,907 crore or 59.0 per cent during 2013-14 compared with Rs 12,83,411 crore or 36.3 per cent during the corresponding period of the previous financial year.
Moreover, the analysis of data for 2013-14 showed that priority sector advancing by public sector banks registered change to 39.0 per cent of Net Bank Credit (NBC) as on the last reporting Friday of March 2014 from 41.0 per cent of NBC as on last reporting Friday of March 2011.
Thus the flow of bank credit to the priority sector increased considerably after the nationalisation of major commercial banks. Due to the sincere and conscious efforts to increase the flow of credit to the priority sectors, the advances made by these banks to agriculture, small scale industries, small borrowers and other weaker sections of the community showed a marked increase.
Moreover, advances to retail trade and education, which received negligible attention earlier, now have also been increasing considerably.
Performance # 3. Deposit Mobilisation:
Nationalized banks have performed significantly in respect of deposit mobilisation. Since nationalisation deposit mobilisation has been of the order of 16 to 17 per cent in every year. Total volume of bank deposits of public sector banks increased from Rs 3,896 crore in June 1969 to Rs 59,51,241 crore in June, 2014 showing an increase by more than 1,527 times.
In December 2014, nationalized banks including SBI contributed 71.39 per cent of aggregate bank deposits.
Performance # 4. Involvement in Development Efforts:
Lead Bank Scheme:
After nationalisation public sector commercial banks have shifted their emphasis from profitability to development effort. With the interest they have introduced “Lead bank Scheme” under which all different districts of the country are allotted to these nationalized banks for making adequate credit for production and employment.
For such purpose they have formulated District Credit Plan (DCP) and Annual Action Plan (AAP).
Under this scheme every lead bank is being actively involved in the following matters:
(a) Opening branches in all the important places;
(b) Advancing maximum credit facilities for the economic development of the district and also for generating employment; and
(c) Mobilization of savings of the people living in the district itself.
Thus on the basis of the recommendations of the first study groups and its endorsement by the Nariman Committee, the RBI finalised and introduced the Lead Bank Scheme (LBS) in December 1969 which was a Co-ordinated programme for setting up of adequate banking facilities in the under-banked districts of the country.
Under the scheme, all districts in India, with the exception of the metropolitan areas of Mumbai, Kolkata, Chennai and the Union Territories of Chandigarh, Delhi and Goa were allotted among the major scheduled banks, which included state Bank Group (SBI and its 7 subsidiaries), nationalized banks and other major banks, so as to play a lead role for promoting developmental activities.
The criteria for allotment of districts were the size of the bank, the extent of its resources for handling the volume of work, contiguity of the districts to attain a cluster of lead districts, the regional orientation of the banks, the desirability of each state to maintain more than one lead bank operating in its territory and each bank operating in more than one state.
A lead bank is responsible for taking leading role in surveying the credit needs, development of branch banking and extension of credit facilities in the districts allotted to it. Under such lead role, the banks act as consortium leaders to maintain a co-ordination between the co-operative banks, the commercial banks and other financial institutions in this respective districts with the interest of lead district development.
Then lead banks were expected to maintain liaison with the district authorities, and also conduct a ‘quick and impressionist’ survey of the lead district so as to identify centres where the new bank branches could be located and also to prepare a phased programme for its branch expansion in the lead districts.
Accordingly, a common proforma was devised for collecting the basic economic informationâ€™s about the district. On the basis of such survey reports, the lead banks took necessary steps for tapping the deposit potential and filling its credit gaps by preparing a phased programme and also supplanting or uprooting the non-institutional money lenders or credit suppliers.
Thus a lead bank was made responsible for taking a leading role in surveying the credit needs, development of branch banking and extension of credit facilities in the districts allotted to it.
Moreover, the performance of lead bank should also be judged not simply by the number of branches opened by them but also by the number of projects assisted by them for improving productivity as well as for creating employment opportunities which are more or less expected to work as catalysts of development of the district.
Since February 1988, Commercial banks had also introduced “Service Area Approach” under which a rural or semi-urban branch of a commercial bank was assigned with specific area for undertaking a planned approach for attaining economic growth in a systematic manner. Thus with the introduction of lead bank scheme, the functioning of bank branches, both old and new, in a more intensive manner was possible.
Performance # 5. Extension of Banking in Unbanked Areas:
The nationalized commercial banks has also played an important role in extending the banking service in unbanked areas. Before nationalisation commercial banks were a bit conservative and thereby opened branches mostly in metropolitan cities and other towns and cities. But after nationalisation, banks started to open new branches in rural areas and also introduced lead Bank scheme in all districts of the country.
Thus, the total number rural bank branches opened in unbanked areas of all commercial banks increased from a mere 1860 in 1969 to 32,069 on June, 2005 out of which 30,969 belonged to public sector banks including SBI and its subsidiaries, nationalized banks and regional rural banks. Remaining 1100 rural branches only were opened by other Indian scheduled commercial banks.
Thus the percentage of rural branches of commercial banks out of its total branches stood at 40.00 per cent for State Bank of India and its associates, 40.1 per cent for nationalized banks, 82.2 per cent for Regional Rural Bank and 49.9 per cent for all public sector banks. Thus during the post-nationalisation period, the public sector banks played a significant role in extending bank branches in unbanked areas.
However, even after so much of branch expansion, only 32,073 villages out of 5.0 lakh villages are covered by commercial banks directly. Besides expansion of bank facilities in rural and backward areas, the necessary provision of bank credit for farmers and rural artisans at concessional rate of interest have resulted low profitability of public sector banks.
Performance # 6. Supply of Credit to Programmes for Self-E
In order to remove imbalances in the rural economy, the nationalized Commercial banks have associated themselves with various government programmes like IRDP, PMRY, SUME for promoting the ideas of self-employment. Under Integrated Rural Development Programme (IRDP), these banks assisted a number of beneficiaries of the rural areas for a long period since 1980.
During 1990-91 bank assisted about 3.0 million beneficiaries and disbursed loan worth Rs 1,190 crores and subsidy worth Rs 800 crore. Again, in 1995-96, about 20.9 lakh beneficiaries were assisted by these banks and banks disbursed a loan to the extent of Rs 2,778.5 crore and subsidy to the extent of Rs 690 crores.
Besides, these banks have also assisted in self-employment scheme for rural unemployed youth and assisted nearly 1 lakh beneficiary in this programme. Banks also assisted good number of beneficiaries under Prime Ministerâ€™s Rozgar Yojana (PMRY) for educate unemployed youth, Scheme for Urban Micro Enterprises (SUME) etc.
Some other important schemes introduced by the Government of India and presently being implemented by the banking system include:
(a) Self Employment scheme for Educated Unemployed youths (in 1990-91, Rs 150 crores amount of loan was sanctioned benefitting 1.0 lakh persons).
(b) Self Employment Programme for the Urban Poor (Rs 64 crore loan was sanctioned to 1.4 lakh persons) and Credit to Minority Communities (loan amounting to Rs 938 crore was sanctioned to 13 lakh borrowers account holders during 1991-92).
Moreover, in Urban Self-Employment Programme (USEP) under the SJSRY, banks helped groups of urban poor women setting up self-employment ventures since 1997-98. Again since 1999-2000, under SGSY micro enterprises covering all aspects of self-employment organising rural poor’s into Self Help Groups (SHGs) were also assisted by banks through a mix of bank credit and government subsidy.
Finally, the Self-Help Group (SHG) Bank linkages Programme has emerged as an important micro finance programme in the country in recent years and 563 districts in all states and UTs have been covered under this programme. At present, 560 banks including 48 commercial banks, 196 RRBS and 310 Cooperative banks along with 3,024 NGOs are now associated with this programme.
The number of SHGs linked to banks, aggregated to 18.3 lakh as on December 30, 2005. Cumulative disbursements of bank loans to these SHGs stood at Rs 8,319 crore as on December 30, 2005.
Performance # 7. Poverty Alleviation Programmes:
Differential Rate of Interest (DRI) schemes: In April 1972, the Government introduced the scheme of differential rate of interest primarily covering 162 districts. Later on, the scheme was extended to all over the country. Under this scheme public sector banks were assigned to give loan at a concessional rate of interest of 4 per cent to weaker sections for the improvement of their economic conditions.
As on June 1990, total number of such accounts has increased to 4.3 million and the amount of outstanding advances under this programme was Rs 708 crore. The number of such accounts, however declined to 3.0 million by March 1996 and the amount of outstanding advances was Rs 702 crore.
These advances constitute 0.6 per cent of the total outstanding advances as against the stipulated target of 1 per cent of the total outstanding advances.
In order to remove imbalances in the rural economy, the nationalized commercial banks associated themselves with Integrated Rural Development Programme (IRDP). Accordingly, in 1995-96, about 20.9 lakh beneficiaries were assisted by these banks and banks disbursed a loan to the extent of Rs 2,778.5 crore and subsidy to the extent of Rs 690 crore.
Besides, these banks have also assisted in self-employment scheme for rural unemployed youth and assisted nearly 1 lakh beneficiary in this programme.
Some other important schemes introduced by the Government of India and presently being implemented by the banking system include:
(a) Self Employment Scheme for Educated Unemployed Youth (in 1990-91, Rs 150 crore amount of loan was sanctioned benefitting 1 lakh persons),
(b) Self Employment Programme for the urban poor (Rs 64 crore loan sanctioned to 1.4 lakh persons) and credit to Minority Communities (loan amounting to Rs 938 crore was sanctioned to 13 lakh borrowal account holders during 1991-92).
Performance # 8. Diversification in Banking:
As per guidelines issued by the Government to the nationalized commercial banks under Section 6 of the Banking Regulation Act, 1949, for diversifying their functions, these banks have now established merchant banking divisions and are now underwriting new issue. Some nationalized banks have been permitted to introduce mutual funds. So far seven public sector banks have already floated 23 schemes of mutual fund.