Class 11 Finance Important Chapter 8 Nationalisation of Banks

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Class 11 Finance Important Chapter 8 Nationalisation of Banks

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Nationalisation of Banks

Chapter: 8

IMPORTANT QUESTION AND ANSWER

Answer the Following Question:

1. What is meant by the nationalisation of banks?

Ans: Nationalisation of banks means transferring ownership and control of banks from private individuals to the government, making them public sector banks.

2. Why was there a need for the nationalisation of banks in India?

Ans: To prevent concentration of economic power, ensure funds reach priority sectors like agriculture, expand banking to rural areas, and correct the failure of social control over private banks.

3. Mention any two criticisms of bank nationalisation.

Ans: (i) Banks may be used for political purposes rather than productive use. 

(ii) It may lead to inefficiency and poor customer service similar to other government undertakings.

4. List three achievements of bank nationalisation.

Ans: (i) Rapid branch expansion in rural areas. 

(ii) Tremendous increase in deposit mobilisation. 

(iii) Increased bank credit to priority sectors such as agriculture and small industries.

5. What is the Differential Rate of Interest Scheme?

Ans: It is a scheme started in 1972 to provide loans to weaker sections of society at a concessional rate of 4%, even without collateral security.

6. Explain the main objectives behind the nationalisation of banks in India.

Ans: The nationalisation of banks in India was carried out with several key objectives in mind to reform the banking sector and support the country’s socio-economic development. 

These objectives include:

(i) Preventing Concentration of Economic Power: Before nationalisation, banks were mostly controlled by large industrialists who used bank resources for their own business empires. Nationalisation broke this monopoly and ensured wider access to credit.

(ii) Failure of Social Control: Prior to 1969, banks were under ‘social control’, but many banks failed to follow government regulations. Hence, full control was necessary to direct bank credit toward national priorities.

(iii) Support to Priority Sectors: Government wanted to channel funds to sectors like agriculture, small-scale industries, education, and housing, which were ignored by private banks.

(iv) Rural Penetration and Deposit Mobilization: Nationalisation helped expand bank branches into rural and backward regions, thereby mobilizing rural savings and integrating remote areas into the banking system.

(v) Balanced Regional Development: Nationalised banks were directed to serve underdeveloped areas and help remove regional disparities by ensuring access to credit facilities.

7. Discuss the criticisms against the nationalisation of banks.

Ans: Despite its many objectives, nationalisation of banks also faced significant criticisms:

(i) Political Influence: Critics argue that public sector banks might be used to fulfill political motives instead of productive economic purposes, which could result in misuse of funds.

(ii) State Capitalism: The move was seen as a shift towards state capitalism rather than socialism. With 90% of banking resources under government control, it raised concerns about over-centralisation.

(iii) Inefficiency and Bureaucracy: Nationalised banks were feared to become inefficient like many public sector units. There were concerns about delays, corruption, and lack of accountability.

(iv) Poor Customer Service: Public sector banks were often criticized for their indifferent attitude towards customers and lack of innovative services compared to private sector banks.

(v) Unrealistic Expectations: It was believed that overnight transformation of commercial banks into institutions that support agriculture and weaker sections was impractical. The promises made during nationalisation did not always materialize.

8. Describe the achievements of bank nationalisation in the field of credit expansion and rural development.

Ans: Nationalisation of banks played a vital role in expanding credit facilities and promoting rural development in India:

(i) Credit to Priority Sectors: Public sector banks began offering loans to agriculture, small-scale industries, self-employed persons, and weaker sections—sectors neglected earlier.

(ii) Differential Rate of Interest Scheme: Introduced in 1972, this scheme ensured that the weaker sections received loans at a concessional interest rate of 4%, even without collateral security.

(iii) Rural Branch Expansion: Nationalised banks opened thousands of new branches in rural and semi-urban areas, which were previously underserved. This brought banking facilities to the doorstep of the common man.

(iv) Deposit Mobilisation from Rural Areas: With increased presence in villages, banks were able to collect savings from rural households and convert them into productive investments.

(v) Support to Government Schemes: Nationalised banks provided essential support to rural development programs and schemes launched by the government.