Public Sector Banks (PSBs)
If the
government holds
majority stake, i.e,.
more than 50 % stake of an
enterprise, then it is known as
Public Sector Unit (PSU). Government is the
owner of the
PSU, and is responsible for the
managerial control of the enterprise.
Similarly, if the
majority stake (
>50 %) of a
bank is held by the
government (generally, central government), then it is known as
Public Sector Bank (PSB).
To know whether a
bank (or any enterprise) is a
public sector bank, just take a note on the
stake of
government.
Nationalized Banks
If some
private entity or
individual holds the
majority stake (>50 %) of a
bank, then it is a
Private Sector Bank. Now if the
government buys the
majority stake of the
private bank, and take the
managerial control of it, then it will be known as
Nationalized Bank, and the process will be known as
Nationalization.
Note that the bank earlier was a
private bank, but after the
nationalization process, it became a
Nationalized Bank. Hence to know whether a
bank is a
nationalized bank, just take a note on the
history of the bank (
private -> public) and the
stake of
government in it.
Nationalized Bank vs. PSB
Now it is
evident that a
nationalized bank is always a
public sector bank (PSB), because the
government (in turn the public)
owns it (
>50 % stake), but a
PSB may not be a
nationalized bank (if the
government itself creates the bank, with majority stake).
History of Nationalization
- The Reserve Bank of India (RBI) was nationalized with effect from January 1, 1949, on the basis of Reserve Bank of India (Transfer to Public Ownership) Act, 1948.
- The Central government entered the banking business with the nationalization of the Imperial Bank of India in 1955 (60% stake bought by RBI), and renamed State Bank of India (SBI) under State Bank of India Act, 1955. In 2008, government acquired RBI's stake in SBI to remove any conflict of interest, because RBI is the banking regulatory authority.
- The 7 other state banks became the subsidiaries of SBI, after being nationalized on 1959, under State Bank of India (Subsidiary Banks) Act, 1959. Currently 2 SBI subsidiaries are merged, making total 5 SBI associate banks.
- The major nationalization took place in July 19, 1969 under former PM Smt. Indira Gandhi, under Bank Nationalization Act, 1969. 14 major banks were nationalized at that time, making 84 % of total branches coming under government control. However, on February 10, 1970, the Supreme Court held the Act void on the grounds that it was discriminatory against the 14 banks and that the compensation proposed to be paid was not fair compensation.
A fresh Ordinance was issued on February 14, which was later replaced by Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970.
- The next nationalization process took place in 1980, making 6 other banks nationalized. 91 % of total branches came under government control, through Banking Companies (Acquisition and transfer of Undertakings) Ordinance, 1980.
Which banks are Nationalized Banks?
This is a debated topic. If we consider the definition of Nationalized banks, then the criteria is - the bank need to be a private bank prior nationalization. This criteria is satisfied by RBI, SBI, SBI associates and all other banks that are nationalized in 1969 and 1980 (total 14 + 6 - 1 = 19, '-1' because New Bank of India is merged with Punjab National Bank in 1993).
But it is better not to call RBI, SBI, or SBI associates as a Nationalized Banks. Because, they draw power from different Acts, like -
- RBI - Reserve Bank of India (Transfer to Public Ownership) Act, 1948
- SBI - State Bank of India Act, 1955
- SBI Associates - State Bank of India (Subsidiary Banks) Act, 1959
Banks that are nationalized in 1969 and 1980 draw power from Banking Companies (Acquisition and transfer of Undertakings) Act of 1969 and 1980, are known as Nationalized Bank.
These total 19 banks are designated as Nationalized Banks by RBI in their website too -
Also note that IDBI Bank Ltd. is denoted as Other PSBs in the website.
Bharatiya Mahila Bank (BMB) is a government-owned bank from the beginning. So there is no process of nationalization involved. Hence it is a Public Sector Bank.
Now we can calculate the total number of Public Sector Banks (PSB) as -
- SBI and SBI Associates - 6 banks
- Nationalized banks (both 1969 & 1980) - 19 banks
- IDBI bank - 1 bank
- BMB bank - 1 bank
Total = 6 + 19 + 1 + 1 = 27 PSBs
This was the calculation till March 31, 2017.
But w.e.f April 1, 2017, the 5 associate banks of SBI and Bharatiya Mahila Bank (BMB) are merged with SBI.
Therefore, as on 18/06/2017, the number of Public Sector Banks (PSB) is 27 - 5 - 1 = 21
Nationalization vs. Privatization
Nationalization is the process for a
government to expand its
economic resources and power, whereas
Privatization is the process where
government-owned companies are spun off into the
private sector.
SBI Merger with Associate Banks and BMB
Read this article of
SBI Merger
Disclaimer - This topic is a much debated topic. You can have your own opinion. There is no proper definition or guideline, by which you can determine whether a PSB is a nationalized bank, or not. Any kind of debate regarding this topic is welcome.
If you like reading this blog, please like and share
Happy learning!
