14 private banks nationalised in big economic reform
In 1969, the Indira Gandhi-led govt took the step for the ‘development of the economy’
One of the country’s biggest economic measures was completed in a hurry on July 19, 1969. A week after Prime Minister Indira Gandhi pushed for nationalisation amid failures and bad investments by private banks, work on an ordinance began on July 17, 1969 and was ready two days later, allowing the government to take over 14 private banks. Experts said the move proved enormously popular, with credit flow improving to agriculture and the countryside.
On July 19 that year, 14 leading commercial banks with deposits exceeding ₹50 crore each were nationalised. Acting President VV Giri signed an ordinance late in the day to enforce the Union government. It was his last major act during his 80-day tenure as President. The dramatic takeover decision, which came within hours of the acceptance of Morarji Desai’s resignation as the deputy prime minister, was carried through unanimously at a hurriedly convened meeting of the Cabinet.
The ordinance claimed that the takeover was intended “to serve better the needs of development of the economy in conformity with national priorities and objectives”.
The 14 banks covered by the ordinance were the Central Bank of India, Bank of India, Punjab National Bank, Bank of Baroda, United Commercial Bank, Canara Bank, United Bank of India, Dena Bank, Syndicate Bank, Union Bank of India, Allahabad Bank, Indian Bank, Bank of Maharashtra and Indian Overseas Bank.
The ordinance excluded from the scope of nationalisation Indian scheduled banks with deposits of less than ₹50 crore at the end of June 1969 and branches of banks incorporated outside India. While excluding the foreign banks from the purview of nationalisation, the government decided to ask the Reserve Bank of India to instruct these banks not to increase their deposits.
Compensation was set to be paid to the shareholders of the acquired banks on the basis of the net value of their assets less the liabilities. A provision was also being made for the appointment of a tribunal to which disputes regarding compensation would be referred for adjudication.
A press release explaining the ordinance said that the scheme of nationalisation envisaged in the ordinance provides “the necessary degree of continuity in the normal operations of each bank so that the relations of the depositors and borrowers with their banks are not disturbed”.
The total deposits with banks at the end of June 1969 were of the order of ₹4,600 crore. Of this, deposits amounting to ₹2,700 crore were accounted for by the 14 banks. The State Bank of India and its subsidiaries had deposits amounting to ₹1,300 crores. Thus, the nationalised sector of banking would have ₹4,000 crore out of the total deposits of ₹4,600 crore. The previous act of nationalisation by the government was in 1956, when life insurance companies were taken over and the Life Insurance Corporation (LIC) came into existence. July 19’s decision put an end to the controversy over the amplitude of social control, experts said.