CHAPTER4 NATIONALISATION OF INDIAN BANKS AND THEIR PROGRESS AFTER NATIONALISATION

Transcription

1 CHAPTER4 NATIONALISATION OF INDIAN BANKS AND THEIR PROGRESS AFTER NATIONALISATION

2 CHAPTER4 NATIONALISATION OF INDIAN BANKS AND THEIR PROGRESS AFTER NATIONALISATION The banks are the custodians of savings and powerful institutions to provide credit. They mobilize the resources from all the sections of community by way of deposits and provide them to industries and others by way of granting loans. Soon after Independence, the demand for nationalization of banks in India was raised by some leading members of the Congress party, the socialist and communist parties. The nationalization of the Reserve Bank in 1949 was the first step in this movement. Another important event was the passing of the Banking Regulation Act in This Act gave extensive controlling powers to the Reserve Bank and the Government over the joint stock banks. After some time, the question of nationalization of the Imperial Bank of India was raised. British officers were changed in the management of this bank. Initially, due to its lack of preparedness, the Government denied the need for nationalization of this bank. However, in July 1, 1955 on the recommendation of the Rural Credit Survey Committee, the Imperial Bank of India was renamed as the State Bank of lndia as per SBI Act 1954 and the State Bank Group was established in 1960 as per State Bank of India (Associate Banks) Act It was observed that the growth of Indian commercial banking was too slow and deficient in many respects. Commercial banks were mainly managed by big business houses. So concentration of wealth and economic powers was in the hands of a few industrialists and monopoly business in banking system was created. Bank directors were related to big business houses. They utilized banks' resources by granting of loans to the companies in which they had interests. Thus, the resources of banks were misused. The lending policy of the commercial banks was highly discriminatory. They did not grant credit for the interest of the nation or for the development of the priority sectors. Their major advances were distributed among large and medium-scale industries and big and established business firms. They did not give attention to the requirements of priority 30

3 sectors like agriculture, small-scale industries, exports etc. Bank finance was also supplied to some antisocial or undesirable activities like hoarding, black-marketing, speculation etc. To overcome these deficiencies radical changes were needed in the structure and functioning of commercial banks. In this respect, a new banking policy was initiated by the Congress Government in 1967, described as the 'social control of banks'. The concept of 'social control' was in fact, introduced by the AICC Resolution on the eve of the Fourth General Elections. 'Social Control' of banks was deemed to be a midway between complete social ownership, i.e. nationalization and maintenance of the status quo. According to the AICC Resolution, social control means greater participation of banks under the effective guidance of the State in the mobilization of deposits and allocation of credits to the socially desirable sectors of the economy, which would ensure enlarged material benefits to the nation at large. The scheme of social control of banks, was introduced by the Government on December 14, 1967, when the then Finance Minister Morarji Desai made a statement in the Lok Sabha while explaining its objectives, main features and the mode of functioning. In this statement, Mr. Desai categorically stated that there was no need for nationalizing banks at that time and social control measures alone would effectively serve the purpose. He explained that the aim of social control was "to regulate our social and economic life so as to attain the optimum growth rate for our economy and to prevent at the same time monopolistic trend, concentration of economic power and misdirection of resources". Government took several steps to exercise social control over banks to make banking more purposeful, more dynamic and more helpful to the common man. These steps are discussed as follows: A) A National Credit Council (N.C.C) at an all-india level was established in December It was basically designed as an instrument of credit planning. The National Credit Council consisted of representatives from large, medium and small-scale industries, agriculture, cooperative sector, trade and bankers and professional accountants. The Finance Minister was its Chairman and the 31

4 Governor of the Reserve Bank was vice-chairman. It started its function from February The main functions of the N.C.C were (i) to assess the demand for bank credit from different sectors of the economy; (ii) to determine priorities for granting loans and advances for investment, considering the availability of resources and the requirements of the priority sectors, particularly, agriculture, small-scale industry and exports; (iii) to co-ordinate lending and investment policies as between commercial banks and the specialized agencies with a view to ensuring an optimum and efficient utilization of resources and (iv) to tackle other related issues as may be referred to it by the chairman or the vice-chairman of the Council. B) The Banking Laws (Amendment) Act was passed in December 1968 as legislative measure for social control over banks and came into effect from Main provisions of this new Act are discussed below: (i) The majority of directors of a Bank had to consist of persons having special knowledge or practical experience in any of the areas such as accountancy, agriculture and rural economy, banking, co-operative, economics, finance, law, small-scale industries etc. (ii) Bigger banks had to be managed by whole time chairman possessing special knowledge and practical experience of working in a banking company or in finance, economics or business administration. (iii) At least two directors had to possess special knowledge and practical experience in respect of agriculture, rural economy and co-operation. (iv) The banks were also prohibited from making any loans or advances, secured or unsecured to their directors or to any companies in which they had substantial interest. (v) The Reserve Bank was, however, empowered to appoint, remove or terminate the services of the chairman, any director, the chief 32

5 executive officer or any other officer or employee of a bank, under specific circumstances. (vi) All foreign banks were to set up an advisory board consisting of Indians and conduct their lending policies and activities under the guidance of such an advisory board. (vii) The Government had power to take over any bank in the country, without resorting to legislation, in the interest of depositors and better provision of credit. C) In order to enlarge the commercial banks' role in agricultural finance, the Agricultural Finance Corporation Ltd. was set up in I 968. D) The RBI also introduced changes in its branch expansion policy, as guided by the N.C.C for extending banking facilities to wider areas. However, the social control measures were not able to achieve the desired social and economic objectives. Therefore, the Government of India nationalized fourteen major Indian banks each having deposits of Rs. 50 crore and above on 19th July No foreign bank was taken over. The names of 14 banks taken over by the Government under the Banking Companies (Acquisition & Transfer of Undertakings) Act of 1969 are: Central Bank of India Ltd. (2) Bank of India Ltd. (3) Punjab National Bank Ltd. (4) The Bank of Baroda Ltd. (5) The United Commercial Bank Ltd. (6) Canara Bank Ltd. (7) United Bank of India Ltd. (8) Dena Bank Ltd. (9) Syndicate Bank Ltd. (1 0) The Union Bank oflndia Ltd. (11) Allahabad Bank Ltd. (12) The Indian Bank Ltd. (13) The Bank of Maharashtra Ltd. and (14) The Indian Overseas Bank Ltd. On April 15, 1980, Government took over another six private sector banks whose reserves were more than Rs. 200 crore each. The six banks taken over by the Government under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 are (1) The Andhra Bank Ltd. (2) The Punjab and Sind Bank Ltd. (3) The New Bank oflndia Ltd. (4) The Vijaya Bank Ltd. (5) The Corporation Bank Ltd. and (6) The Oriental Bank of Commerce Ltd. In 1993, New Bank of India merged with Punjab National Bank. As a result, the total number of public sector banks including SBI and its associates are

6 4.1 Reasons for nationalization Various authorities have given many reasons for the nationalization of major commercial banks. Opinions given by them are discussed below: A) The then Prime Minister, smt. Indira Gandhi: According to the opinion of then P.M, Smt. Indira Gandhi, private sector banks were nationalized (i) to remove control of few; (ii) to provide adequate credit facilities to agriculture, small industry and exports; (iii) to give professional bent to bank management; (iv) to encourage new classes of entrepreneurs and (v) to provide adequate training as well as reasonable terms of service to bank staff B) Other opinions of protagonists of nationalization: (i) The Revenue Issue: Nationalization of banks would enable the Government to obtain all the large profits of the banks as its revenue. (ii) The Safety Issue: Nationalization of banks would safeguard and promote the interests of depositors. As a result public would deposit very rapidly a large amount of money. (iii) The Monopoly Issue: All major private banks in India were controlled by one big business house or the other or jointly by a few of them. Consequently, concentration of wealth and economic power was in the hands of a few industrialists. The directors of banks had close connections with numerous companies of big business houses and they used to finance the companies in which they had interests. Nationalization of banks was desirable to prevent the spread of the monopoly enterprise. It would secure a great and strategic control over the national economy. (iv) The Use Issue: The benefit of commercial banks' massive financial resources had gone largely to the big business which controlled these. The directors of banks related to companies of big business houses financed the companies in which they had interests and sometimes they financed each other's companies on a reciprocal basis in order to prevent healthy competition. The manipulation of bank advances helped in increasing some anti-social and illegal activities such as hoarding, black-marketing etc. and creating artificial 34

7 scarcity which resulted m continued pnce spirals in our economy. Nationalization of banks would help in stabilizing the pnce levels by eliminating artificial scarcity of essential goods and encouragmg m development of bank resources for productive purposes. (v) The Credit Issue: Private commercial banks adopted traditional approach in their credit policy which was not conducive to a rapid, balanced development of all the sectors of our economy. They gave preference to the organized sectors like wholesale trade and medium and large industry rather than smaller traders, industrialists and agriculturists for financing their resources. Main object of these banks was to earn profits. Most of the bank credit granted to industry was utilized by them for financing inventory holdings rather than for its expansion. Therefore bank loans were not purpose-oriented but were person-oriented or collateral-oriented. Nationalization of banks was considered as important matter to allocate bank finance for the needs of Indian economic development (vi) The Priority Issue: Private Banks did not grant bank credit for the purpose of national interest and development of priority sector. Bank credit was not granted to needy farmers or small-scale industrialists or to new entrepreneurs. Thus, nationalization of banks was desirable so that banking sector could utilize its resources for the benefit of the priority sector under the schemes of planned economic development of the country. (vii)rural Issue: Private sector banks were not interested in openmg their branches in semi-urban and rural areas. Their activities were largely confined to urban areas and mostly in metropolitan cities. After nationalization, disparity in the spread of banking facilities would be removed and rural banking would receive a big push through public sector banking. (viii) The Service Motive Issue: By nationalization commercial banks would change their function from profit motive to service motive in order to achieving the goal of socialism. 35

8 (ix) The Equality Issue: After nationalization, wide disparities in the salaries in different commercial banks would be removed. Before nationalization top executives of some private banks received unduly high salaries than their counterparts in the public sector. (x) The Tax Issue: The All India Bank Employees Association contended that nationalized banks would check the incidence of tax evasion and black money. 4.2 criticisms against nationalization of banks Various criticisms against nationalization of banks were also raised on the following grounds: 1. It was erroneous to assume that after nationalization the Government would secure large revenues by way of profits from banks. But according to the statistical data of the Reserve Bank of India, a small portion of total profit earned by the nationalized commercial banks went to Government after nationalization. Nationalization also led to the payment of heavy compensation to the shareholders of the private sector banks. This gave additional financial burden on the Government. 2. It was feared that if banks were nationalized the state authorities would take discriminatory policy in the granting of credit and the whole banking system would come under political pressures. They would use financial resources for political purposes rather than for productive purposes. 3. It was said that before nationalization private sector banks were involved in malpractices and did not safeguard the interests of their depositors. But this argument was wrong when the banks were performing their functions strictly under the control of Reserve Bank and Banking Regulation Act. Moreover, the Banking Regulation Act gave the Reserve Bank of India and the Government extensive powers to inspect, control and direct the operations and administration of banks in the interests of depositors as well as of the nation. Further, Deposit Insurance Corporation was established to protect the interests of the depositors. In this situation, the argument that nationalized banks would get greater 36

9 confidence from the public and secure larger deposits from it had no validity. State monopoly in banks would result in irresponsibility, inefficiency, rigidity, bureaucracy, corruption and deteriorated services to the customer. So, the confidence of the public would be lost from the nationalized banks. 4. It was also incorrect to say that private sector banks were responsible to create monopolies and concentration of economic power in a few hands. In fact, it was the operation of Government policies of industrial, import and other licensing and of plan priorities that had encouraged some big concerns to come into existence and flourish. Banks financed their resources to these concerns only because they had been playing a vital and commanding role in the economic setup, planned and assigned by the Government. If these firms did not get bank credit, they could not run their business which caused wastage of community's resources. 5. It was true that credit given by joint-stock banks to agriculturists, co-operative institutions and small industries constituted a small proportion of the total bank credit. But this was due to the difficulty of assessing the creditworthiness of the borrowers and the economic viability of their activities. As the banks were trustees of the funds deposited by public, they could not give loans to persons whose creditworthiness was doubtful. 6. Nationalized banks would not be able to change the profit motive into service motive in their operations. It is not consistent with any banking principles or practice to lend money for schemes which are not expected to make a profit. Moreover, planning,implies an optimum use of resources. Unless nationalized banks adopt a commercial approach in their operations, it will be impossible to utilize their resources in the best possible manner. Moreover, the nationalized banks will be accountable to the nation, though Parliament and even the ministry of Finance will not approve the performance of the nationalized banks if they do not follow the banking and accounting principles strictly. 7. It was expected that after nationalization public sector banks would receive better co-operation from their employees. But the experience of the Reserve Bank of 37

10 India, the State Bank of India, the Life Insurance Corporation and other undertakings in the public sector, in this regard disappointed us. There was no cordial relationship between management and employees. Even, it could not be said that performance of the State Bank of India was better than that of private sector banks in regard to the efficiency of the services rendered to the customers. 8. The argument, that public sector banks would set up new branches in semi-urban and rural areas rapidly than the private banks, had no validity, because, a bank whether a private bank or a nationalized bank had to run their business by following banking principles and satisfy itself that the new branches were economically viable. 9. It was true that the gross emoluments of the top executives of the larger private sector banks were appreciably higher than those of their counterparts in undertakings in the public sector. But there was a little difference between their net emoluments because most of the difference between the gross emoluments of the two sets of executives was due to higher rates of income taxes which increased very steeply in the case of higher incomes. Thus, the difference in the gross emoluments was more apparent than real. However, for this fact, top executives of the private sector banks were eager to put their best efforts to make their respective banks more effective and remained alert in rendering newer, better and quicker service to their customers. 10. Banks were not at all responsible for the tax evasion or for the creation of black money. It was produced by an irrational tax-structure, high deficit financing and the corrupt public administration of the country. Therefore, it could not be said that bank nationalization could check tax evasion or curb the creation of black money. 4.3 Achievement after nationalization By and large, nationalized banks have achieved some phenomenal success in regard to attaining the objectives of nationalization. A dramatic change has occurred in the profile of Indian banking especially in the deployment of commercial bank credit which 38

11 has made banks as effective catalytic agents of socioeconomic change in the country. The following are the major achievements of public sector commercial banks: A. Branch Expansion: There has been a rapid progress in branch expansion of public sector banks especially in the rural and semi-urban areas, which was one of the primary objectives of nationalization. Table 1 shows the branch expansion of Indian scheduled commercial banks during the period of 1969 to Table-1: Branch Expansion of Indian Scheduled Commercial Banks Bank offices at the end of Bank Group July 1969 June 1989 June SBI & its associate banks Nationalized Banks 4168@ Public Sector Banks (1+2) Private Sector Banks Foreign Banks in India RRBs Total ( ) Note:@- Branches of 14 nationalized banks only [Source: RBI Bulletin, Report on Trend & Progress of Banking in India, , and respectively] It is evident from the above table that branch expansion of Indian scheduled commercial banks increased by 53,372 in number and the overall rate of branch expansion of was 641 % during this period, in which nationalized banks increased their braches by 629 %.Branches of SBI and its associate banks increased by 412 % and those of Indian private sector banks by 136 % during this period. So, we notice that the performance of nationalized banks was better as compared to other banks. It is noted that the Indian private sector banks too have tired to maintain the pace of branch expansion by keeping consistency with the public sector banks. The RBI gave permission to each bank for opening one branch in metropolitan town after the establishment of four branches in rural areas. Consequently, a rapid progress of branch expansion of Indian scheduled commercial banks in rural areas accounts for praise during the post-nationalization 39

12 period. Table 2 reveals spread of scheduled commercial bank branches in India as per Bank Group or Population Group wise during the period of Table-2: Distribution of Scheduled Commercial Bank Branches in India- Bank G roup /P opu I ation. G roup wise Centre SBI NTN PSBs PrSBs Fgn RRBs ASCBs (1) (2) (3=1+2) (4) (5) (6) (7= ) Rural: July (33.3) (16.9) (23.0) (20.0) (22.4) June (46.1) (47.8) (47.3) (32.1) (92.6) (57.2) June (47.4) (48.4) ( 48.1) (31.8) (92.3) (57.3) Semi-Urban: July (47.5) (35.1) (39.7) (41.9) (40.2) June (28.9) (20.0) (22.6) (31.9) (6.4) (19.4) June (27.2) (19.6) (21.9) (33.4) (1.4) (6.6) (18.9) Urban: July ( 10.1) (22.3) (17.7) (16.5) (17.5) June (14.7) (17.5) (16.7) (19.3) (1.0) (13.0) June (I 5.2) (I 7.7) (17.0) (20.5) (7.5) (1.1) (13.5) Metrogolitan: July (9.1) (25.7) (I 9.6) (21.6) (20.0) June (1 0.3) (14.7) (13.4) (I 6.7) (Negligible) ( 10.4) June (I 0.2) (14.3) (13.0) (I 4.3) (91.1) (Negligible) (10.3) Total: July (100) (100) (100) (100) (100) June (100) (100) (100) (100) (100) (100) June (100) (1 00) (100) (100) (100) (100) (100) Figures in brackets indicate percentage to total in each group 40

13 [Source: RBI Bulletin, Report on Trend & Progress of Banking in India, , , ] SBI = SBI & its Associate Banks NTN =Nationalized Banks PSBs = Public Sector Banks PrSBs = Private Sector Banks Fgn =Foreign Banks in India RRBs = Regional Rural Banks AS CBs = All Scheduled Commercial Banks All scheduled commercial banks opened 57.3 % branches in rural areas during while in other areas rate of opening new branches by them decreased during this period. SBI & its associate banks opened total branches 47.4% in rural areas in June 1994, as compared to 33.3 % in Nationalized banks approximately tripled their branches in rural areas from 16.9% to 48.4% during The proportion of rural branches in the total number of public sector banks branches recorded a significant rise from 23 % to 48.1 %. Similarly, the proportion of rural branches of private sector banks increased from 20 % to nearly 32 % during B. Deposit Mobilization and Credit Expansion: There has been a spectacular rise in the rate of deposit mobilization and in the bank credit during the post-nationalization period. Table 3 depicts the growth of bank deposits and credits of Indian scheduled commercial banks during the post-nationalization era ( ). Table-3: Deposits and Credits of all Indian Scheduled Commercial Banks (Figures in crore of rupees) Year Bank Deposits Bank Credits June March March [Source: RBI Bulletin, Report on Trend & Progress of Banking in India, , and respectively] It is shown from the above table that aggregate deposits increased from Rs.4640 crore in 1969 to Rs crore in 1989 and thereafter also increased in 1994 by Rs crore. Planned economic development, deficit financing and increase in currency 41

14 issued helped to increase the quantum of bank deposits during the post-nationalization period. Scheduled Commercial Banks in India promoted banking habit among the people through sustained publicity, extensive branch banking and relatively prompt service to the customers. Massive deposit mobilization as well as inflationary expansion of money supply caused phenomenal growth in bank credit. Total bank credit of all Indian scheduled commercial banks recorded a jump from Rs crore tors crore during the period June 1969 to March 1989 and thereafter, it became approximately doubled from Rs crore in March 1989 to Rs crore in March C. Advances to Priority sectors: Since, one of the important objectives of bank nationalization was to channelise the flow of credit to the priority sectors, public sector banks made marked progress in this direction i.e., after nationalization, there was a remarkable change in the credit policy of the banks. Credit to the priority sectors especially agriculture, small-scale industry and small transport operators were given more importance by the policy makers. In addition, other priority sectors such as retail trade, professional and self-employed persons, education, housing loans for weaker sections and consumption loans were also included In 1980, RB I issued certain directives to the banks regarding priority sector lending and expected their cooperation and compliance: (a) Priority sector advances should constitute 40% of aggregate bank credit; (b) Out of priority sector advances, at least 40 % should be provided to agriculture; (c) Direct advances to the weaker sections in agriculture and allied activities in rural areas should form at least 50 % of the total direct lending to agriculture; (d) Bank credit to rural artisans, village craftsmen and cottage industries should be at least 12.5% of the total advances to small scale industries; (e) About 12% of bank credit should go to exporters. Advances provided by public sector banks to the priority sectors have been shown in Table 4. 42

15 Table-4: Advances to the Priority Sectors by Public Sector Banks (as on the last reporting Friday) Number of Accounts Amount Outstanding Sector (in lakh) (Rs. crore) June June March June June March I. Agriculture (5.4) (18.4) (15.0) (i) Direct (1.3) (16.5) (13.7) (ii) Indirect (4.1) (1.9) (1.4) II. Small-scale industries (8.5) (16.9) (15.3) III. Other priority sector advances (including small (0.7) (9.3) (7.4) transport operators, selfemployed persons, rural artisans etc.) IV. Total priority sector advances (I+II+III) (14.6) (44.6) (37.8) v. Net Bank Credit Nil Nil Nil Data are provisional. Figures in brackets represent percentages to net bank credit [Source: RBI Bulletin, Report on Trend & Progress of banking in India, , and respectively] It is evident from this table that the share of the priority sectors in net bank credit of the public sector banks increased from nearly 15 % in June 1969 to 37.8 % in March Between June 1969 and March 1994, the number of borrowal accounts with the public sector banks under priority sectors rose from 2.60 lakh to lakh which was 43

16 about 140 times. Advances by public sector banks to the priority sectors increased by about 12000% from Rs. 441 crore in June 1969 tors crore in March At the initial stage of post-nationalization period, the rate of progress was quite rapid but later the progress was more modest. "The relatively slow progress of advances to the priority sectors was due to the fact that the bank officials from top to bottom were not imbued with the new objectives of banking. At the same time, banks were also worried at the poor and unsatisfactory recovery performance of the agriculture and small sectors" [Dutt & Sundaram, 2004 p.835]. D. Social Banking: Special Employment and Poverty alleviation programmes: As social banking, the public sector banks have played a significant role in financing their funds in various social sector schemes sponsored by the Government of India for employment generation and poverty alleviation. These schemes are discussed below: (a) Differential Rate of Interest (DRI): The social objective of protecting the poor from the rich can be accomplished if the banks follow a policy of interest rate discrimination called 'Differential Rate of Interest (DRI)' Scheme. The Scheme of DRI is justified on economic ground in so far as the elasticity of demand for credit is higher in the case of poor than in the case of rich (Dasgupta, 1972, p.1281 ). It has also been argued that the DRI Scheme is justified on the ground that the public financial institutions are to protect the weaker sections from monopolistic exploitation by the private money lenders (Rao, 1972, p.l893). On the basis of these justifications, the Government of India gave permission on March 25, 1972 to public sector banks for implementation of DRI Schemes on advances. This scheme was introduced in April 1972, covering 162 districts. Later the scheme was extended to the whole country. Under this scheme loans are given at 4 % rate of interest to such borrowers who (a) have really no tangible security of any worth to offer on their own (b) cannot produce a guarantee of a well-todo party and (c) can be helped to rise through the scheme which becomes economically viable within 3 years. 44

17 Under this scheme, loans up to Rs. 6,500 are given to a rural household and urban household having annual income up to Rs. 6,400 and Rs. 7,200 respectively. Public sector banks issued advances under DRI Scheme Rs crore in lakh borrowal accounts at the end of March 1989 as compared to Rs.88 lakh in borrowal accounts in At the end of March 1989, the advances of these banks under this scheme formed 0.9% of total advances, while total advances under this scheme to scheduled castes and scheduled tribes at the end of March 1988 formed 49.3 % of total DRI advances as against the target of 40 %. The number of accounts and amount outstanding declined later due to the carefulness of banks to select the really deserving ones. (b) Self-Employment Scheme for Educated Unemployed Youth (SEEUY): This scheme has been effective since The public sector banks sanctioned an aggregate credit ofrs crore to 1.01lakh beneficiaries during and Rs crore to 1.88 lakh beneficiaries during (c) Self-Employment Programme for Urban Poor (SEPUP): The Government of India introduced this scheme in September 1986 to provide self-employment opportunities to the urban poor. The public sector banks sanctioned an aggregate credit of Rs crore and Rs crore to 3.82 lakh and 3.41 lakh beneficiaries during and respectively. (d) Integrated Rural Development Programme (IRDP): The Government of India introduced this scheme to rectify imbalances in rural economy and also for all-round progress and prosperity of the rural masses. Under this scheme, banks assisted nearly 3 million beneficiaries and disbursed a total amount of Rs. 1,190 crore as loan and Rs. 800 crore as subsidy during Out of 3 million beneficiaries, over 1.5 million belonged to SCs I STs and 0.9 million were women. 45

18 The above discussion clearly shows the achievements of public sector banks after nationalization. However, there are certain limitations associated with the working of the public sector banks. They are: (i) The quality of service rendered by them has deteriorated due to staff indiscipline and absence of the system of accountability. (ii) Due to lack of adequate professionally trained staff in certain areas like agricultural financing, public sector banks except State Bank of India did not carry their operations in good condition. (iii) Interference of the high officials of the department of the Government of India in the management of banks leads to decision- making on the basis of political expediency rather than by following strict banking norms. (iv) The increasing advances to unemployed for self-employment and loans to weaker sections have created the problem of bad debts, doubtful debts and over-dues. 46