Essay on the Growth of Commercial Banking in India


A banking revolution occurred in the country during the post-nationalisation era. The commercial banks, especially public sector banks, have drastically changed from their traditional money dealing business to innovative banking and sub-served their operations to the needs of nation-building activities and socio-economic upliftment of the Indian masses.

It is rightly said that Indian banking has changed from class-banking to mass-banking or social banking.

There has been a marked diversification of banking business from traditional to non-traditional and even to non-financial areas of operation during the last two decades.


In recent years, there has been a conscious reorientation of banking policy towards the attainment of social goals. The following have been the major shifts in the banking policy of the country:

Urban to rural orientation;

Profit motive to mass banking;

Class banking to mass banking;


Big customers to small customers;

Traditional banking to innovative banking;

Short-term finance to development finance;

Security based lending to purpose oriented lending;


Creditworthiness of the borrower to the purpose of borrowing; and

Self-interest to social perspectives.

Indian banking has become development oriented. There are both quantitative and qualitative dimensions to the progressive changes that have taken place in our banking industry, ushering in a new era in the county’s economic progress.

Some of these changes, along with the progress of nationalised banks, have been briefly discussed in the following sections.


Regional Development :

Prior to nationalisation, there has been an uneven geographical coverage by the banking institutions. There were gross regional imbalances in the development of banking sector in the country.

Regional imbalances of banking development have been noticed at two levels:

(i) Between urban and rural areas; and


(ii) Among different states of the county.

Urban-Rural Disparities and Development :

The private sector commercial banks were urban- oriented in their growth. Rural areas were starved of banking facilities. Many villages did not have any bank branches and were thus starved of banking facilities.

To improve the situation, therefore, the commercial banks, especially the public sector banks, undertook a programme of massive expansion of bank branches in the rural, under-banked and unbanked areas, which aimed at ensuring balanced regional development of the banking sector in the country.

A comparable picture of the regional disparities which existed prior to bank nationalisation and the trend of development in the post-nationalisation period can be visualised from the data pertaining to the population group-wise position of branches of commercial banks.

In June, 1969, there were 8,262 total branches of the commercial banks. Their number has increased to 61,742 in June 1994. Of these, the rural areas accounted for over 57 per cent in 1994 as against that of 22 per cent in 1969.

The Public Sector Banks (PSB) have done remarkable job in opening a large number of branches in unbanked areas Unbanked centers accounted for nearly 65 per cent of the total number of new bank branches opened during last two decades. By 2007, there are 71,781 total bank branches in India.

State-wise Disparities and Development :

There has been an uneven growth of banking in different states of the country. Only a few advanced states were fairly served while a majority of them has poor banking facilities.

In June 1969, the all-India average population- bank office (P-B) ratio was 65,000. But most states were having a much higher P-B ratio than the national average.

For instance, the P-B ratios of some of the states were as follows: Andhra Pradesh 75,000, Assam 198,000, Bihar 207,000, Jammu & Kashmir 114,000, Madhya Pradesh 116,000, Manipur 497,000, Nagaland 205,000, Orissa 212,000 and Uttar Pradesh 119,000.

These figures reveal the great deficiency in banking facilities obtained in these states in 1969.

On the other hand, only a few states were in a better position. For instance, the P-B ratio for Gujarat was 34,000, Haryana 57,000, Kamataka 38,000, Maharashtra 44,000, Punjab 42,000 and Tamil Nadu 37,000.

To correct regional imbalances in banking development, the bank adopted the area approach and the lead bank scheme in their branch expansion programme. Presently, the situation has improved very much.

In June 1994, the all-India P-B ratio came down to 14,000. The P-B ratio for Andhra Pradesh has also dropped to 14,000 which matches with the national average.

The P-B ratios for other states have also dropped to the following figures: Assam 18,000, Bihar 18,000, Jammu & Kashmir 10,000, Madhya Pradesh 12,000, Orissa 13,000, Uttar Pradesh 13,000.

Similarly, the P-B ratios of advanced states also have further declined. For instance, the ratio of Gujarat has come down to 12,000, Maharashtra 14,000, Haryana 13,000, and Punjab 9,000.

Thus, the range of disparities between the rich and poor states has considerably narrowed down. In 1969, for instance, Gujarat has the lowest P-B ratio (34,000) while Manipur had the highest P-B ratio (4, 97,000). But, in 1994, P-B ratio of Gujarat dropped to 12,000 while that of Manipur to 22,000.

Analysing the relative growth of commercial banking in terms of various indicators like branch expansion, deposits and advances in the various states during 1969- 79, Dr. Chhipa. 4 however, arrives at the following classification of states:

I. Highly Developed States: Kerala, Maharashtra, Punjab and West Bengal.

II. Moderately Developed States: Gujarat, Haryana, Kamataka, and Tamil Nadu.

III. Low Developed States: Andhra Pradesh, Assam, Bihar, Himachal Pradesh, J & K, M.P., Rajasthan and U.P.

IV. Very Low Developed States: Orissa and Tripura.

By and large, however, the overall growth of bank branches in the last 21 years has been remarkable in its geographical coverage and removal of regional imbalances in the country.

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