Did you know that there are two main types of banks: public sector banks and private sector banks? Public sector banks are controlled by the government and private sector banks are controlled by individuals and companies. When a private sector bank is bought by the government, it becomes a nationalized bank. This process is known as nationalization. Similarly, when the government sells a public sector bank to a person or company, it becomes a privatized bank. This process is known as privatization.

The History of Nationalization of Banks

The first bank that was ever nationalized in India was the Imperial Bank of India. It has been run by the government since 1955.

A major wave of nationalization took place in 1969, when 14 private sector banks were nationalized by the government. A second round of bank nationalization took place in 1980.

Today, India has 12 public sector banks, such as Punjab National Bank, Bank of Baroda and Canara Bank. There are also over 20 private sector banks in India, including ICICI Bank, Axis Bank and HDFC Bank.

Why would the government want to nationalize banks?

• State-run banks set up branches in remote areas of the country. This helps more people get access to banking services.
• When poor people get access to banking services, they can benefit from special saving schemes to help lift them out of poverty.
• Nationalized banks tend to focus on providing services that are good for people rather than services that will make more money.
• They provide funding to farmers as well as small, village industries for their expansion and development.

Why would the government consider privatizing banks?

• Some public sector banks have been losing money even with increased support from the government.
• The government can earn some money by selling banks that aren’t doing well to companies.
• Private companies are better able to reduce their losses and focus on making money.
• Private sector banks tend to focus on customer satisfaction and provide new and better services.

Sources:
NDTV: Budget 2021
India Today: Bank Nationalization
Times of India: Bank Privatization