Proposals for the nationalization of the Imperial Bank were under consideration ever since the attainment of independence in 1947. It was nationalized in 1955 according to the recommendations of Rural Credit Survey Committee.
The committee recommended that the government should establish a strong government owned commercial bank, which would undertake rapid expansion of banking facilities in rural areas. For this purpose, it suggested the government to nationalize the Imperial Bank and other state associated banks.
The basic reasons for the nationalization of the Imperial Bank are given below:
(1) Already Functioning as a Semi-government Bank:
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The Imperial Bank from its establishment in 1920 had enjoyed a number of privileges and was functioning as a semi-government bank.
It was established under a separate Act of Parliament, the Imperial Bank of India Act. It acted as the agent of Reserve Bank of India in the places where the RBI did not have its branches. Hence, it was considered more appropriate to nationalize the Imperial Bank.
(2) Transfer of Profits to the Government:
The Imperial Bank earned huge profits because of the public confidence on it and because of its association with the government, large amount of government funds are kept with it. Thus, the government considered that it was necessary to transfer the profits arising out of government funds to the government account.
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(3) Promotion of Agriculture and Rural Development:
After the Second World War, the agricultural prices had gone up, and the rural areas were not covered by the banking operations.
Hence, in order to increase the agricultural produce there was a need to extend credit facilities to the rural areas. To promote agriculture in all respects, the government considered that it was necessary to nationalize the Imperial Bank.
(4) Implementation of the Monetary Policy of the Government:
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Finally, the government required strong commercial base for the implementation of its monetary policy and five year plans. It also became the root cause for the nationalisation of the Imperial Bank.