DEPARTMENT OF TECHNICAL

EDUCATION,A.P.
Name : P. Samba Murthy,
Designation : Head of Department

Branch :D.C.C.P.
Institute : S.R.R.S. Govt. Polytechnic, Sircilla,
Karimnagar District
Year/Semester : V Semester
Subject : Banking – I
Subject Code : CCP- 504(B)
Topic : Indian Banking Industry – Growth
Duration :50 Minutes
Sub-Topic : Evaluation of Nationalization Vs
Privatization
Teaching Aids : PPT CCP504(B).32 1
Objectives

 On completion of this period, you would be able to

 Understand the evaluation of Nationalization of

Banks.

CCP504(B).32 2
Introduction
 The period since bank nationalization is of great
importance from the point of view of banking
development as the size and the reach of the
banking system have registered spectacular
progress in this period.
 The rate of per cent of G.D.P. is also increased.
 In rural areas, the numbers of banks were also
increased.

CCP504(B).32 3
Evaluation of Nationalized Banks

 Opening of rural branches has improved

mobilization of savings in the rural sector around
15 per cent.
 Since bank nationalization in our country priority
sector credit has also enormously increased

CCP504(B).32 4
Evaluation of Nationalized Banks

 Over the years development of banking has been

faster in relatively less developed regions of the
country and as a result regional disparities have
declined and the concentration of banking business
is now less.

CCP504(B).32 5
Evaluation of Nationalized Banks

 The performance of the banking system in India

since the nationalization of 14 banks is definitely
impressive.
 The achievements of the banking sector
nowhere near meeting the needs of the
economy.

CCP504(B).32 6
Evaluation of Nationalized Banks

 Since development oriented policy of the banks

eroded their profitability, it was used by the
Narasimhan Committee to criticize Directed
credit programmes.
 The Committee argued that the directed
investment and directed credit programmes
together with mounting expenditures completely
eroded the profitability of the banks.

CCP504(B).32 7
Evaluation of Nationalized Banks

 The new income recognition and provisioning

norms, and accounting procedures and formats
which were announced in April, 1992 and
adopted in 1992-93 revealed the extent of the
deterioration in the profitability of the banks

CCP504(B).32 8
Evaluation of Nationalized Banks

 In 1992-93 while State Bank of India and its

associates seven other public sector banks and
private sector banks as a group declared small
profits, the remaining public sector banks and
foreign banks reported net losses.

CCP504(B).32 9
Evaluation of Nationalized Banks

 During the year 1993-94, provisioning

requirements of the banks were higher than in
1992-93 and, therefore, public sector banks other
than State Bank of India and its associates
reported larger net loss at the end of the year.

CCP504(B).32 10
Evaluation of Nationalized Banks

 Nonetheless, there has been an over all

improvement in the efficiency of scheduled
commercial banks during the liberalization period.

 It is evident in the declining ratios for operating

expenses to net total expenditure.

CCP504(B).32 11
Evaluation of Nationalized Banks

 Commercial banks during the post-

nationalization phase had a societal purpose
and thus directed credit programme was
pursued, though it eroded profitability of the
commercial banks.
 Banks were not regarded as profit maximizing
institutions. Hence it is wrong to assess their
performance in the terms of their profitability.

CCP504(B).32 12
Evaluation of Nationalized Banks

 Nevertheless in the process of ignoring profitability

considerations, many commercial banks lost their
financial viability and by the end of 1980’s.
 It had become clear that further neglect of
profitability considerations could ultimately send
banking institutions to their bankruptcy.

CCP504(B).32 13
Summary

 Considering overall situation, it may be argued that

since in the later post-nationalization phase overall
profitability of the banks was either low or even
negative and their non-performing loans both as a
percentage of total advances and as a percentage
of assets were fairly high.
 Their financial position was extremely weak. This
situation improved only after implementation of
various reform measures during the 1990s.

CCP504(B).32 14
Frequently Asked Questions

 List the findings of Narasimhan Committee over

the banking sector.
 Briefly explain the impact of rural branches.

CCP504(B).32 15
QUIZ

1)In the 1992 – 93 which bank declared

profits
2. Andhra bank
3. SBI and its associates
4. Bank of India
5. Central bank of India

CCP504(B).32 16
QUIZ

2) What is the reason for low profitability

of the public sector banks?
2. Loans to industries
3. Loans to professionals
4. Directed credit programme
5. Loans to employees

CCP504(B).32 17