Public Sector Banks and Nationalized Banks
Public Sector Banks (PSBs)
If the government holds majority stake, i.e,. more
than 50 % stake of an enterprise, then it is known as Public Sector Unit (PSU).
Government is the owner of the PSU, and is responsible for the managerial
control of the enterprise.
Similarly, if the majority stake (>50 %) of a
bank is held by the government (generally, central government), then it is
known as Public Sector Bank (PSB).
To know whether a bank (or any enterprise) is a
public sector bank, just take a note on the stake of government.
Nationalized Banks
If some private entity or individual holds the
majority stake (>50 %) of a bank, then it is a Private Sector Bank. Now if
the government buys the majority stake of the private bank, and take the
managerial control of it, then it will be known as Nationalized Bank, and the
process will be known as Nationalization.
Note that the bank earlier was a private bank, but
after the nationalization process, it became a Nationalized Bank. Hence to know
whether a bank is a nationalized bank, just take a note on the history of the
bank (private -> public) and the stake of government in it.
Nationalized Bank vs. PSB
Now it is evident that a nationalized bank is always
a public sector bank (PSB), because the government (in turn the public) owns it
(>50 % stake), but a PSB may not be a nationalized bank (if the government
itself creates the bank, with majority stake).
History of Nationalization
- The Reserve Bank of India (RBI) was
nationalized with effect from January 1, 1949, on the basis of Reserve
Bank of India (Transfer to Public Ownership) Act, 1948.
- The Central government entered the banking
business with the nationalization of the Imperial Bank of India in 1955
(60% stake bought by RBI), and renamed State Bank of India (SBI) under
State Bank of India Act, 1955. In 2008, government acquired RBI's stake in
SBI to remove any conflict of interest, because RBI is the banking
regulatory authority.
- The 7 other state banks became the subsidiaries
of SBI, after being nationalized on 1959, under State Bank of India
(Subsidiary Banks) Act, 1959. Currently 2 SBI subsidiaries are merged,
making total 5 SBI associate banks.
- The major nationalization took place in July
19, 1969 under former PM Smt. Indira Gandhi, under Bank Nationalization
Act, 1969. 14 major banks were nationalized at that time, making 84 % of
total branches coming under government control. However, on February 10,
1970, the Supreme Court held the Act void on the grounds that it was
discriminatory against the 14 banks and that the compensation proposed to
be paid was not fair compensation.
- A fresh Ordinance was issued on February 14,
which was later replaced by Banking Companies (Acquisition and Transfer of
Undertakings) Act, 1970.
- The next nationalization process took place in
1980, making 6 other banks nationalized. 91 % of total branches came under
government control, through Banking Companies (Acquisition and transfer of
Undertakings) Ordinance, 1980.
Which banks are Nationalized Banks?
This is a debated topic. If we consider the
definition of Nationalized banks, then the criteria is - the bank need to be a
private bank prior nationalization. This criteria is satisfied by RBI, SBI, SBI
associates and all other banks that are nationalized in 1969 and 1980 (total 14
+ 6 - 1 = 19, '-1' because New Bank of India is merged with Punjab National
Bank in 1993).
But it is better not to call RBI, SBI, or SBI
associates as a Nationalized Banks. Because, they draw power from different
Acts, like -
- RBI - Reserve Bank of India (Transfer to Public
Ownership) Act, 1948
- SBI - State Bank of India Act, 1955
- SBI Associates - State Bank of India (Subsidiary
Banks) Act, 1959
Banks that are nationalized in 1969 and 1980 draw
power from Banking Companies (Acquisition and transfer of Undertakings) Act of
1969 and 1980, are known as Nationalized Bank.
These total 19 banks are designated
as Nationalized Banks by RBI in their website
too -
(Please refer - http://www.rbi.org.in/commonman/English/scripts/banksinindia.aspx)
Also note that IDBI Bank Ltd. is denoted
as Other PSBs in the website.
Bharatiya
Mahila Bank (BMB) is a government-owned
bank from the beginning. So there is no process of nationalization involved.
Hence it is a Public Sector Bank.
Now we can calculate the total number of Public
Sector Banks (PSB) as -
- SBI and SBI Associates - 6 banks
- Nationalized
banks (both 1969 & 1980)
- 19 banks
- IDBI
bank - 1 bank
- BMB bank
- 1 bank
Total = 6 + 19 + 1 + 1 = 27 PSBs
This was the calculation till March 31, 2017.
But w.e.f April 1, 2017, the 5
associate banks of SBI and Bharatiya Mahila Bank (BMB) are
merged with SBI.
Therefore, as on 18/06/2017, the number of Public
Sector Banks (PSB) is 27 - 5 - 1 = 21
Nationalization vs. Privatization
Nationalization is the process for a government to
expand its economic resources and power, whereas Privatization is the process
where government-owned companies are spun off into the private sector.
