After going through this post, you will be able to understand arguments in favour and against the Nationalization of Banks.
Arguments in Favour of Nationalization of Banks
- Branch expansion: To balance the banking system, nationalized banks set an objective to initiate branch expansion programmes. The number of bank branches was about 8260 in 1969 and it increased to about 80,514 in 2009.
- Deposit mobilization: The expansion of bank deposits is important for the development of an economy. Banks played an important role in the development of banking habits among the people in the nation.
- Priority sector lending: To provide more credit to the priority sectors such as agriculture and small-scale industries.
- Involvement in development efforts: After nationalization, these public sector commercial banks have shifted their motive from profitability to development efforts.
Arguments against Nationalization of Banks
- Political pressure: Political influence would start interfering in routine banking activities. Usually, political and administrative intervention in credit decision-making led to a deterioration in the quality of loan portfolios, resulting in poor rates of recovery.
- Possibility of losses: Commercial banks extend credit facilities to the priority sector at concessional rates of interest which adversely affects the profitability of these banks.
- Lack of competition: Despite a large number of banks, there was little scope for competition among them because of regulated interest rates. Customer services also deteriorated because there was no competition among these banks to capture business.
- Trade unions of bank employees: Trade unions of bank employees are the strongest supporters of the nationalization of banks. Hence, bank strikes may lead to an economic crisis.
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