Explain two circumstances each which prompted the government to announce the nationalization of banks in 1969, and then later, the privatization of banks after 1991.
Two circumstances that
led to the nationalization of banks in 1969:
1) Social control was not adequate: The 'social control' measures of the government did not work
well. Some banks did not follow the regulations given under social control.
Thus, the nationalisation was necessitated by the failure of social control.
2) Greater control by the Reserve Bank: In a developing country like India there is need for
exercising strict control over credit created by banks. If banks are under the
control of the Govt., it becomes easy for the Central Bank to bring about
co-ordinated credit control. This necessitated the nationalisation of banks.
Two circumstances that led to the privatisation of banks in
1991:
1) Burden of compensation: Nationalisation leads to the payment of heavy compensation to the
shareholders because their motive is public service rather than profit earning.This
gives additional financial burden on the government.
2) For tackling problem of inefficiency: Nationalized banks were inefficient because of corrupt practices. It was necessary for the
government to go for privatization in 1991 for bringing transparency in their
operations
Two circumstances that led to the nationalization of banks in 1969:
1) Social control was not adequate: The 'social control' measures of the government did not work well. Some banks did not follow the regulations given under social control. Thus, the nationalisation was necessitated by the failure of social control.
2) Greater control by the Reserve Bank: In a developing country like India there is need for exercising strict control over credit created by banks. If banks are under the control of the Govt., it becomes easy for the Central Bank to bring about co-ordinated credit control. This necessitated the nationalisation of banks.
Two circumstances that led to the privatisation of banks in 1991:
1) Burden of compensation: Nationalisation leads to the payment of heavy compensation to the shareholders because their motive is public service rather than profit earning.This gives additional financial burden on the government.
2) For tackling problem of inefficiency: Nationalized banks were inefficient because of corrupt practices. It was necessary for the government to go for privatization in 1991 for bringing transparency in their operations
