10 main Criticisms against Nationalisation of the Banks

The various criticisms against nationalisation of banks can be summarised as follows:

(i) Political purpose rather than for Productive purpose:

The government has acquired the strength of a giant and there is the danger of using the financial resources for political pur­poses rather than for productive purpose.

(ii) Beginning of state capitalism:

Such a drastic step of nationalisation of about 90% of the banking resources is wholly unnecessary, especially if we take into consideration the enormous powers vested in the Reserve Bank of India for controlling banks’ resources.

It is considered as the beginning of state capitalism and not socialism in India.

(iii) Scope for inefficiency:

Some are of the opinion that after nationalisation banks will degenerate to the level of agricultural co-operatives, which are known for their inefficiency and corrupt practices. Some fear that the officers who manage these big banks also have to bow down to the politicians in course of time.

(iv) India’s prestige abroad:

The political prestige of India in foreign countries was dam­aged by this act of nationalisation. Doubts are expressed especially in countries which are rendering large-scale financial assistance to India, about the assurances and promises given by the government with regard to freedom of foreign enterprise in India. This may ad­versely affect the foreign assistance which India was receiving then.

(v) Less attractive customer’s service:

The nationalised banks are sure to join the ranks of other public undertakings which are known for their working to losses. Inefficiency, indeci­sion, corruption, and lack of responsibility are the evils with which the government under­takings are suffering. A government bank may not care to attach importance to the cus­tomer service.

(vi) Secrecy of customer’s accounts:

In spite of the assurances given and provisions made in the Act, businessmen still fear about the maintenance of the secrecy of the customer’s accounts. As such, they may be forced to withdraw their deposits and go to some bank in the private sector and foreign banks. Thus nationalisation of big Indian banks .will diverts some of the deposits of Indian banks to the foreign banks which is not at all desirable.

(vii) Promises may not materialise:

Nationalisation cannot convert the commercial banks overnight into agricultural banks. Similarly, the hopes raised among the poor and middle class people about the bank loans may ultimately prove to be false.

(viii) Industry and trade may suffer:

Diversion of large sums of finances from the indus­try and trade to agricultural is sure to starve the large-sized industries and business for finance. We cannot ignore the fact that the big industries and business are providing employment to millions of people and largely contributing to the production of wealth. To starve them for finance simply because they are ‘big’ will be upsetting the job opportunities and production in these concerns.

(ix) Branch expansion:

To argue that nationalisation will help to facilitate branch expan­sion to rural areas much more rapidly than the private banks cannot be supported by facts. Weather it is private bank or nationalised bank; it has to go by business principles and satisfy itself that the new branch is economically viable.

In other words, branch expansion can be achieved by private banks as well, without nationalisation.

(x) Burden of compensation:

Nationalisation leads to the payment of heavy compensa­tion to the shareholders. This gives additional financial burden on the government. More­over, it is also argued that nationalisation will not bring much income to the government.

In spite of these criticisms, we cannot ignore the fact that at present, nationalisation of banks is an accomplished fact. By and large this measure received support from almost all sections of the public. It was welcomed by the middle class people and small industrialists and small traders.

Nationalisation is designed to accelerate the tempo of investment and production to raise the living standards of the people. But it should be noted that nationalisation is not an end in itself – it is a means to the end of increasing the economic prosperity.

The success of the measure depends upon the new vigour and dynamism which the nationalised banks can bring about in mobilising the nation’s savings and applying them for the rapid eco­nomic development to the country.