On the evening of 19 July 1969, Prime Minister Indira Gandhi announced on the radio that the government had taken over the fourteen largest private banks in the country. Bank nationalisation was among the most far-reaching economic decisions since independence, and it was also a decisive move in a political struggle.
Banking before 1969
- The State Bank of India had been in government hands since 1955.
- Most other large banks were controlled by business houses and lent mainly to industry and trade.
- Farming, which employed most Indians, received only a tiny share of bank credit.
- Branches were concentrated in cities; most villages had none.
- Bank failures were common, and depositors often lost their savings.
The politics
Indira Gandhi had become Prime Minister in 1966 and was locked in a contest with the older leaders of the Congress, known as the Syndicate. They were more conservative on economic policy. Her Finance Minister and Deputy Prime Minister, Morarji Desai, opposed nationalisation and favoured “social control” of banks instead.
On 16 July 1969 she took the finance portfolio away from Desai, who resigned from the government. Three days later came the ordinance. The decision was hugely popular, and it helped her in the battle that split the Congress later that year.
What was done
- Date: 19 July 1969, by presidential ordinance
- Banks: the 14 commercial banks with deposits of more than ₹50 crore
- Share: together they held about 85 per cent of the country’s bank deposits
- Among them: Central Bank of India, Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank and Syndicate Bank
The court battle
A shareholder, R. C. Cooper, challenged the law. In February 1970 the Supreme Court struck it down, largely over the compensation offered. The government issued a fresh ordinance within days and passed a new law.
The second round
On 15 April 1980, after Indira Gandhi’s return to power, six more banks, those with deposits above ₹200 crore, were nationalised.
What it achieved
- Branches: from about 8,000 in 1969, the number of bank branches rose to about 60,000 by 1990, most of the new ones in rural and semi-urban areas.
- Savings: household deposits grew many times over as people gained access to banks they trusted.
- Farm and small-business credit: banks were required to lend a fixed share to “priority sectors”.
The criticism
- Political lending: loan fairs and write-offs weakened credit discipline.
- Bad loans and losses: public-sector banks needed repeated injections of taxpayers’ money.
- Poor service and little competition until private banks were allowed again in the 1990s.
Today
The 1991 reforms reopened banking to private companies. The government has since merged the public-sector banks into a smaller number of larger ones, twelve since 2020, but they still hold a large part of the country’s deposits.