The nationalisation of banks in India has been a pivotal event in the country’s economic history, reshaping the financial landscape to promote financial inclusion and economic growth. This article provides a comprehensive overview of the nationalisation process, recent merger activities, and future plans for the banking sector.
History of Bank Nationalisation in India
Phases of Nationalisation
First Phase (1969):
On July 19, 1969, 14 major private banks were nationalised under the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance.
Objective: To ensure banking services reached underserved areas and to align banking operations with national development goals.
Key Banks Nationalised: Bank of Baroda, Punjab National Bank, Canara Bank, among others.
Second Phase (1980):
Six more banks were nationalised, bringing 91% of banking assets under government control.
Key Banks Nationalised: Punjab & Sind Bank, Vijaya Bank, Andhra Bank, among others.
Post-1991 Liberalisation:
Focus shifted to liberalisation and privatisation.
New-generation private banks like HDFC Bank and ICICI Bank emerged.
Bank Mergers in India
To consolidate the banking sector and improve efficiency, the Government of India initiated large-scale mergers among public sector banks (PSBs). These mergers aimed to create stronger entities capable of competing globally.
| Acquiring Bank | Merged Banks | Outcome |
|---|---|---|
| State Bank of India (SBI) | State Bank of Bikaner & Jaipur, State Bank of Mysore, State Bank of Patiala, Bharatiya Mahila Bank | SBI became India’s largest public sector bank. |
| Punjab National Bank (PNB) | Oriental Bank of Commerce, United Bank of India | PNB became the second-largest PSB by branch network. |
| Bank of Baroda | Vijaya Bank, Dena Bank | Created India’s third-largest bank. |
| Canara Bank | Syndicate Bank | Canara Bank became the fourth-largest PSB. |
| Union Bank of India | Andhra Bank, Corporation Bank | Formed a stronger regional presence as India’s fifth-largest PSB. |
| Indian Bank | Allahabad Bank | Enhanced operational efficiency and coverage in northern and southern India. |
Impact of Nationalisation and Mergers
Advantages
Financial Inclusion: Expanded banking services to rural and semi-urban areas.
Priority Sector Lending: Directed credit flow to agriculture, small industries, and weaker sections.
Economies of Scale: Mergers reduced operational costs and improved efficiency.
Global Competitiveness: Larger banks with robust balance sheets can compete internationally.
Challenges
Non-Performing Assets (NPAs): Increased lending led to higher NPAs.
Operational Challenges: Integration issues post-merger.
Privatisation Debate: Balancing public ownership with private sector efficiency remains contentious.
Future Plans for the Banking Sector
Privatisation Initiatives
The government plans to privatise select PSBs to reduce its stake below 51%, following amendments to the Banking Companies Acts of 1970 and 1980. However, privatisation has been delayed until after the 2024 general elections.
Strategic Roadmaps
Public sector banks are preparing detailed strategies for:
Raising capital for FY 2025–26 to FY 2027–28.
Leveraging fintech partnerships for digital transformation.
Addressing challenges like cyber security through advanced technologies like AI.
Focus on Consolidation
The government envisions a future with four large PSBs dominating the sector while encouraging private banks to expand their market share.
Key Takeaways for Exam Preparation
The first phase of bank nationalisation occurred in 1969 under PM Indira Gandhi.
A total of 20 banks were nationalised across two phases (1969 and 1980).
Recent mergers have reduced the number of PSBs from 27 (in 2017) to 12 (as of 2025).
Privatisation remains a key agenda but requires legislative amendments.
Future banking reforms focus on digitalisation, governance improvements, and financial stability.
