Unit II: Commercial Banks: Unit banking Vs Branch Banking Functions and balance sheet of a commercial bank Credit

it creation Changing role of commercial banks with special reference to India Nationalization of commercial banks in India

Commercial Banks
England was the home of pure commercial banking theory, according to which the main function of a bank in relation to industry was to meet the working capital requirements of business and industry. Banks lend essentially for short periods. The pure banking theory assumes that a commercial bank cannot freeze funds in capital investments in business undertakings. Mackenzie points out the policy of our banks has always been to make advances to trade and industry for current and seasonal requirements and for short periods and not to lend capital for an indefinite term departure from this policy is attended with risk as the experience of some banks in the past unfortunately proved

Theory of Commercial Banking:

According to the Banking Regulation Act, 1949, Banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise. The business of a commercial bank is primarily to hold deposits and make loans and investments with the object of securing profits for its shareholders. It is firmly believed that banks are not only custodians but trustees also for the vast majority of depositors who have entrusted their hard-earned money with bank for safe custody. A great proportion of this money is payable on demand. Hence, they maintain a considerable percentage of their assets in the form of cash or highly liquid assets to meet withdrawals by depositors. Commercial Banks thus concentrate on short-term loans and advances and leave to the specialized institutions like the Investment Banks and Development Financial Institutions to provide fixed capital for industrial enterprises. It gathers small savings of the people, thus reducing to the lowest limits the quantity of idle money in the economy. Then it combines these small holdings in amounts large enough to be profitably employed in those enterprises where they are most called for and most needed.

Unit Banking Vs. Branch Banking:

In the branch banking system, every bank is a single legal entity having one board of directors and one group of shareholders, and operates through a network of branches through the country. India has adopted this branch banking model of Britain. Under the Unit banking system, the banking operations are carried through a single banking office rather than through a network of braches. Generally, there is only one place of operation and no branches elsewhere, but there may be branches within a strictly limited area. In this system, the area of its operation as well as the size of the bank is smaller and far more limited than is the case under the branch banking system.

Advantages of Branch Banking: a) b)

Proper distribution of capital has two merits (i) capital is put to most productive use and thus promotes increased output and national income of the country, (ii) interest rates tend to be more or less uniform across the country Diversification of deposits and assets. Deposits are received from all areas, particularly from areas where savings are in plenty. At the same time, loans and advances are made in those areas where there is scarcity of money and where interest rates are high. If a particular industry or a region is in specific difficulties, it will not affect the branch banking as risks are scattered over a number of industries and over a wide area. The branch banking system is a great convenience to trade, since trader-customers can get in contact easily with traders in other parts of the country, and the world. Loans and advances made on merit: Loans and advances are made purely on merit and not on other considerations. The branch Manager is not influenced, by personal or local considerations, in granting loans. Large financial resources: The great merit lies in the advantages derived from large financial resources. The requirements can be met easily by the branch banking system. Further, failure of the borrowers need not result in the failure of the bank. This financial strength and ability to meet any crisis is one of the important merits of branch banking system Efficiency of Management: The bank staff may be carefully trained and supervised with greater opportunity for promotion for those who have the capabilities to move into higher positions. Superior quality of business efficiency at head office percolates down to branches. Economy in working: Besides efficiency in management, the branch banking system ensures greater economy in its working. Capital is made available in plenty and at cheaper rates; Adequate and comprehensive banking facilities can be provided even in small isolated towns and villages. Effective Central banking control: The policies of the central bank can be easily explained to the banking system and desired action brought forth.

c) d)

e)

f)

g)

Disadvantages of Branch Banking:

a) b) There is a long procedure and the time taken for granting large loans and advances is extremely long. This is because of lack of sufficient authority to branch managers. They are normally referred to the head office and this often results in delay. The branch managers may not be familiar with local conditions and with the specific problems and difficulties of the local borrowers The funds of a particular locality may not be available for the development of that area but may be used elsewhere The branch banking system leads to concentration of enormous financial resources in the hands of a small number of men, creating a monopoly, which is a constant source of danger to the community

c)
d)

Other defects are:

preferential treatment shown to firms situated near head offices high interest rates charged in well-established localities to cover lower rates in developing regions managerial and supervisory problems in managing and controlling far-flung branches possibilities of mismanagement in branches, and so on

Merits and Demerits of Unit Banking:

Advantages of Unit Banking: a) b) c) d) Resources of the locality are used for the economic development of the same locality and are not transferred to other areas Has specialized knowledge of the local industries and occupations, customs and prejudices. The local needs of the small communities can be served in an effective manner. Since the affairs of the bank are concentrated in one place, there is less likelihood of fraud and irregularities It is free from the diseconomies of large-scale operations which are generally associated with branch banking

Disadvantages of Unit Banking: a) b) c)

d) The most important is that a unit bank has limited financial resources, and therefore cannot withstand a business depression or a run on it. A very important factor which is responsible for the low survival rate of a unit bank is its lack of diversification of deposits and assets. Financial problems faced by the industries in that locality, will adversely affect the bank and lead to closure of the banks. In fact, 5100 banks failed during the Great Depression. It is not able to provide full and adequate banking facilities to small communities because the area of operations is restricted and the unit bank may not command adequate resources. Inadequacy of financial resources is responsible for the inability of unit banking system to support an efficient management Lastly, the unit banker, being a local man, may have to follow considerations other than strict economic principles in granting loans and advances.

e)

In general, the branch banking system is considered to have more merits and has greater power of survival than the unit banking system.

FUNCTIONS OF COMMERCIAL BANKING (i) Deposit mobilization ::

An important function of a commercial bank is to attract deposits from the public. The commercial bank not only protects the cash deposited, but also provides the depositors with a convenient method for transferring funds through the use of cheques. It accepts deposits from every class and from every source, in all cases, without exception. It undertakes to repay the money either in part or full, in legal tender money. Deposits are of various types demand deposits, savings deposits and fixed deposits.

a. Demand Deposits: Also known as Current accounts are those accounts which can be
withdrawn by the depositor any time by means of cheques. The bank does not pay any interest on demand deposits. Demand deposits may be created in two ways: i) deposited cash into the account, ii) by borrowing from a bank and using the amount to create a demand deposit with it. Demand deposits constitute the most important source of circulating medium of exchange.

b. Savings Deposits: Those deposits on which the bank pays a certain percentage of interest to the depositors but the bank places certain restrictions on withdrawal. c. Fixed Deposits: These deposits are made for specific periods and interest paid at different rates, based on the tenure of the deposit. (ii) Making loans and Advances:
The second major function of a commercial bank is to make loans and advances out of deposits of the public. Direct loans and advances are given to all types of persons, particularly to businessmen and investors, against personal security, gold and silver and other moveable and immoveable assets. The most common way of lending is by overdraft facilities-allowing the borrower to overdraw his current account and also by discounting bills of exchange. The bank is thus an intermediary mobilizing the savings of the people on one side, and using them to assist industry and trade, on the other.

(iii) Use of the cheque system and the plastic card:

A commercial bank performs a number of other useful functions to the community. It has developed the cheque system, under which depositors are given right to withdraw from their deposits any amount by means of cheques. While currency note is the legal tender money and is used extensively for all small transactions, the cheque is also used extensively, but for large transactions. This is being gradually replaced by the plastic card which is also based on bank deposits.

(iv) Transfer of funds:

Another function of a commercial bank is to provide facilities for transfer of funds from: One person/entity to another in the same bank same or different branches One person/entity to another in a different bank in the same place From one part of the country to another From one country to another This may be done either by cheque demand draft Telegraphic transfer Electronic Clearing Service (ECS) National Electronics Fund Transfer (NEFT) Real Time Gross Settlement (RTGS)

(v) Other Functions

These include: providing safety vaults or lockers to customers for storing their valuables acting as agents for customers to buy and sell securities on their behalf making and receiving payments on behalf of its depositors issuing letters of credit Travellers Cheques Undertakes the payments of subscriptions, premia, rent, etc (Standing Instructions) Provide Trustee, executor or advisory services Acting as the referee as to the responsibility and financial status of the customer

Bankers Draft and Letters of Credit:

A bankers draft is an order, addressed by one office of a bank to any other of its branches or by any one bank to another, to pay a specified sum to the person concerned. A Letter of Credit is a document issued by a banker, authorizing some other bank to whom it is addressed, to honour the cheques of a person named in the document, to the extent of a stated amount in the letter and discharge the same to the account of the grantor of the letter of credit. It includes a promise by the issuing banker to accept all bills of exchange to the limit of credit. When the promise to accept is conditional on the receipt of documents of title to goods, it is called a documentary letter of Credit. When the promise is unconditional, it is called a clean letter of credit. Letters of credit may be revocable or irrevocable A revocable credit is one which can be cancelled at any time by the issuing banker. But the banker will still be liable for bills negotiated before cancellation. An irrevocable letter of credit is one which cannot be cancelled before the expiry of the period of its currency. Another type of credit is revolving letter of credit. Here the letter is so worded that the amount of credit available automatically reverts to the original amount after the bills negotiated under them are fully honoured.

Bank Giro:
A method of transferring money by instructing a bank to directly transfer funds from one bank account to another without the use of checks. Bank giro transfers are predominantly used in European countries such as Germany, Austria, the Netherlands and Sweden, where they are seen as an effective way for companies to receive payments from foreign customers. It is also known as a "Giro credit".

Credit Cards:
A credit card is basically a payment mechanism which allows the holder of the card to make purchases without any immediate cash payment. Credit limit is fixed by the issuing bank and the limit is determined by the financial history as well as the type of card. The issuing bank makes the payment to the merchant establishment selling the relevant goods or services. The card holder receives the statement and, in turn, reimburses the bank, by a specified date. Debit Cards: Apart from doubling up as an ATM card the Debit card provides a convenient form of making payments for goods and services without the use of cheques or cash. They function like a credit card, with the only difference being (i) the amount is immediately withdrawn from their related bank accounts & (ii) there is no limit set on the card, however, purchases cannot exceed a specified per day limit, which differs from Bank to Bank ATM Cards: Generally used for withdrawing cash through ATMs. However, the following functions are also available on the ATMs: a) deposit of cash & cheques b) balance enquiry c) payment of utility bills d) Request for cheque book & statement

e)

Placement of a Fixed Deposit

Kisan Credit Cards & Laghu Udyami Credit Cards:

They are designated as green card by some banks. They are issued by Indian Banks aimed at providing adequate and timely support from the banking system to the farmers for their cultivation needs including purchase of inputs in a flexible and cost-effective manner. They facilitate farmers in purchase of agricultural inputs, such as seeds, fertilizers and pesticides and withdraw cash for other production and ancillary needs. These cards are issued based on the landholding of the individual and the limit is based on operational landholding, the cropping pattern and scales of finance approved for the area. The cards are valid for three years and are subject to annual review. Udyami Credit cards have been introduced in India for providing simplified and borrower friendly credit facilities to retail traders, artisans, professionals and self-employed persons, small industrial units and small businessmen including those in the tiny sector.

BALANCE SHEET OF A COMMERCIAL BANK

The balance sheet of a Commercial Bank is a statement of its liabilities and assets at a particular time. The liabilities of the bank are the items which are to be paid by the bank either to its shareholders or depositors. The assets of the bank are those items from which the bank hopes to get an income and the assets include all the amounts owned by the others to the bank. Liabilities of a Commercial bank: Every Commercial Bank gets its funds in three ways: a. Share capital contribution by the shareholders b. Reserve fund accumulated profit over the years c. Deposits from the public The first two have to be paid to the shareholders and the third to the depositors. The deposits from the public constitute the major portion of a banks liability. They are liabilities to the bank since they have to be returned, at the same time they are also assets to the bank since the latter can make use of them to get certain interest yielding assets The soundness of a bank will clearly be reflected by the distribution of the bank funds in different types of assets. A good banker is one who follows a wise investment policy which will bring: a) maximum profits for the shareholders, and b) provide maximum security to the depositors Asset Structure of the Bank: The main items of a banks assets are always listed in descending order of liquidity but ascending order of profitability.

The main items of a banks assets are always listed in descending order of liquidity but ascending order of profitability. 1. Cash Balances- The first asset in the balance sheet of a Commercial Bank is Cash cash with itself and cash reserves kept with the central bank in the country and other Commercial Banks. Cash is held with other Commercial Banks for purposes of inter-bank adjustments. Deposit of a bank with other commercial banks or with the central bank is always regarded as cash by a commercial bank. In India, Commercial Banks are obliged, by law, to keep a certain proportion of their total deposits in the form of cash reserves with the Reserve bank of India. Cash is called the Primary reserve and is an idle asset to a bank. Money at Call and short Notice- To meet heavy pressure on the Banks cash reserves due to seasonal changes in depositors and borrowers requirements, the bank may be forced to carry large cash reserves. A better alternative for the bank is to keep some highly liquid but earning assets which can be converted to cash quickly without loss, in case of necessity. Such highly liquid assets consist of call and short notice loans to the brokers in the stock market, dealers in the discount market and to other banks. These loans are often for short periods, like a few days. These assets can be quickly converted into cash, as and when the bank needs additional cash. These are regarded as secondary reserves. Short Term Bills- These are Bills of Exchange for short period (generally for 90 days) and which are easily marketable and hence sufficiently liquid and at the same time bring in good interest income to the bank. A bill of exchange is a written promise by a merchant, who has ordered certain goods, to pay a specified sum of money on a specified date. This bill may be guaranteed by a bank. a. These bills are highly negotiable and can be easily bought and sold. b. Theses bills are eligible for rediscounting with the central bank of the country. That is, if a commercial bank wants additional cash immediately, it can rediscount or re-sell them with the central bank c. They bring in good interest income to the commercial banks Investments- these are for long periods. They are generally invested in Government bonds or in fixed interest yielding debentures or bonds of well established commercial enterprises. These instruments are preferred for two reasons: a. they are highly shiftable to the central bank or to the other banks and institutions b. they have good income yielding capacity However, there is a risk element in selling them in times of need. If the market price is lower than the price at which the bank originally purchased them. Loans and Advances- The most profitable of all bank assets are the loans and advances. Bank loans and advances may be made to industry and trade either by way of Overdrafts of an agreed amount or by discounting bills of exchange. Loans and advances carry a high rate of interest because of the high risk involved, low liquidity and the difficulty of shifting them to other parties. The risk might be in the form of failure of the borrower to repay due to: a. Loss in their business b. insolvency c. liquidation

2.

3.

4.

5.

CREDIT CREATION :
Credit creation can be defined as the expansion of bank deposits through the process of more loans and advances and investments. Banks have the power to expand or contract demand deposits and they exercise this power through granting more or less loans and advances and acquiring other assets. This power of commercial banks to expand deposits through expanding their loans and advances is known as credit creation. Bank credit refers to bank loans and advances and credit creation literally means the multiplication of loans and advances. As every bank loan creates an equivalent deposit, credit creation by bank implies also multiplication of bank deposits. The word creation implies that banks are unique institutions and that they can create bank deposits or create bank money (by giving loans and purchasing bills and bonds) out of nothing. Or with a small amount of cash, they are in a position to acquire a large amount of assets. This is true because what is lent out by a bank comes back to the bank by way of new deposits, which may again be lent out deposit becoming the basis for a loan or investment. Commercial banks always try to maintain their holdings of idle cash to the lowest extent possible. In their attempt to achieve this end, they unwittingly increase the total amount of money in circulation in the community by: lending money with a right to the borrower to draw checks against it. Borrower acquires a claim against the bank Every loan creates a deposit Hartly Withers Thus the commercial bank, as a system, can increase the total amount of money in circulation by increasing the purchasing power of the people through the deposit money created by them. Formula of Credit Creation: Deposit Multiplier As credit creation depends upon the ratio of cash reserves to deposits, the deposit multiplier is: R = 1/r, in which R = deposit multiplier r = ratio of cash reserves to deposits If cash reserve ratio is 20 per cent or 0.2, the deposit multiplier is R = 1/r = 1/0.2 = 5 Limitations of Credit Creation: Theoretically, the banking system can create an unlimited amount of money by way of expansion of bank deposits. However, there are certain factors on which the volume of credit creation depends. The factors that limit a credit creation are: Amount of cash held - The first important factor on which the extent of credit creation depends is the amount of cash which commercial banks possess. The larger the amount of cash with the banking system, the larger will be the credit creation. The banks cash is the lever with which the whole gigantic system is manipulated.

Ratio of cash reserves Credit creation will be the reverse of the cash reserve ratio. The higher the percentage of cash reserve ratio to be kept, the smaller will be the volume of credit creation.

Publics desire to hold cash Credit creation depends upon the amount of cash with the banking system, which will, in turn, depend upon the desire of the general public to hold cash. If the public decide to hold more cash, the banks will be left with smaller amount of cash (deposits), which will force the commercial banks to contract their loans and advances and thus reduce the volume of bank deposits in the country. The total amount of legal tender currency issued by RBI since the total currency in the market is restricted, the credit creation which is based on cash holding of the public, is also directly proportionate to it. Nature of business conditions in the country credit creation will depend upon the nature of business conditions. It will be large during a period of business prosperity while it will be smaller during a business recession. Banks are willing to lend more liberally, and demand for loans and advances, is also high, during periods of prosperity. During periods of recession, the amount of loans and advances will be small because businessmen and industrialists may not come forward to borrow in this period. Also, banks may prefer to keep excess reserves and will be cautious in lending, willing to sacrifice earnings In conclusion, Commercial Banks can increase the total amount of money in circulation through the process of credit creation. Stayers Bankers are not merely purveyors of money, but also, in an important sense, manufacturing of money.

Changing role of commercial banks CHANGING PROFILE OF INDIAN BANKING: As a rule, banking systems are adapted to the structure and needs of the particular economy they exist in. Indian Economic policy has been founded on the philosophy of economic growth with social justice. Initially, the banks were conservative and opened branches mainly in metropolitan cities and other major cities. Branch expansion gained momentum after nationalization of major commercial banks and the introduction of the Lead Bank Scheme. The most striking feature of the Indian banking system is its reach. In a matter of 3 decades after bank nationalization, there was nearly 800 per cent increase in the number of branches, but the most spectacular progress was in rural branches. Some banks have also started mobile offices and satellite offices. The concept of banking has widened from acceptance of deposits and mere loaning of funds to development-oriented banking. Banks are increasingly catering to the needs of industrial and agricultural sectors. From short-term financing, banks have been gradually shifting to medium and even long-term lending. Banks are positively shifting from well-established large industrial and business houses, to assisting small and weak industrial units, small farmers, artisans and other hitherto neglected groups of people in the country. The changed role of Commercial Banks in India can be broadly classified as under: a. Security orientation to Purpose orientation according to traditional banking, a creditworthiness of a person is based on the basis of his tangible assets. The result is that people who have money can get more money from the banks. This concept does not fit into the social concept. What is important is that bank finance should go to make people creditworthy through productive efforts on their part and to turn them into people of means. Technical competence of the borrower, operational flexibility and economic viability of the project rather than the security which the borrower can offer are gradually becoming popular among the banking community in evaluating a loan proposal. Identification of priority sectors for the purpose of lending by banks has given a new orientation to the Indian banking system. Correction of Regional Imbalances: Developments in the field of Branch Banking the expansion of branch network was necessitated with the objective of socioeconomic reach. In December, 1966 there was little under 6600 branches, and by June 1969 the figure reached 8260. Between Jun69 and Apr76, the number of commercial banks in the country reached 12555, bringing the average population served per bank from 65000 to 26000, which was further brought to 15000 by Jun2002 and 66286 branches. Most of the branch expansion happened in the rural and semi-urban areas. Development of banking Habit In line with the increase in the branch network of banks, the development of banking habits in India during the last few decades has been at an unparalleled pace. Sustained efforts have been made by banks to induce people to keep a part of their savings as bank deposits and to expand and diversify

b.

c.

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d.

e.

f.

g.

h.

i.

j.

their lending portfolio to cover a considerably large number of borrowers. In 1969, deposits amounted to 13 per cent of the GDP and advances 10 percent. By 2002, deposits as a proportion of GDP, has risen to around 50 percent and advances to well over 25 percent. Attitudinal Change as the part of Banks: A welcome change in the philosophy and techniques, particularly in the field of lending, is taking place. As observed by the former Governor of RBI the growth of branch banking in the rural areas and the larger involvement of banks with agricultural and small industrial clients, a change by banking going retail instead of its erstwhile wholesale character and the system itself shedding its elitist image to become more truly an operation for the masses rather than the classes Emergence of retail Banking During the recent past, the retail character of banking operations has become more predominant, especially among the new private sector banks. Retail banking or mobilizing deposits from individuals and providing loan facilities to them for home, auto, credit cards, etc., is becoming more popular. With financial sector reforms gathering momentum, the banking system is facing increasing competition from non-banks and the capital market. This is one of the main reasons for the banks to focus vigorously on the much ignored retail deposits. It is also reported that the Indian retail market is only second to USA Breakthrough in Virtual banking closely linked to the above point is the emergence of virtual banking. Going by the latest indications, virtual banking is catching up in the Indian banking system. ATMs have been installed by almost all the major banks in major metro cities. With the development of technology, the banking institutions are now in a position to provide an enlarged range of services to the customers more rapidly and accurately at their convenience without direct physical access to bank branches. Move towards Universal banking - Financial Services Supermarkets A recent trend in the Indian banking system has been the diversification of the activities of the banks by providing a length of financial services within the banks themselves or through the subsidiary route, thereby converting themselves into financial services supermarkets. Thus many have entered the field of merchant banking services, factoring services, asset management services, insurance services, etc. In Feb1994, banks have been allowed to undertake para-banking like equipment leasing, hire purchase financing, etc. Banks have been asked to select certain branches to undertake these activities. From Money Lending to Development banking It may be noted that from being dispensers of short term credit, banks are now actually helping industrial development of the country by providing access to capital market and long term savings of the economy. Establishment of Specialized branches to cater to the needs of specific segments of the clientele: a. Industrial Finance branches b. Overseas branches c. Small Scale Industrial Branches d. Professional branches e. Agricultural Finance branches f. Recovery branches Customer Focus Growing expectation of the bank customers is a marked feature of the current banking environment. Forces of competition and growth of technology are mainly responsible for this change. The emergence of Banking

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Ombudsman scheme instituted by RBI is a welcome step in the right direction. The main objective of the scheme is to create a forum for the speedy redressal of customers grievances and also to receive unresolved complaints about the provision of banking services and to facilitate the settlement or withdrawal of such grievances

NATIONALISATION OF COMMERCIAL BANKS:

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The Central Government acquired the undertaking of 14 major banks, after passing an Ordinance called the Banking Companies Ordinance on 19July1969. The banks that have been nationalised had deposits of Rs.50 crore and above as at June1969. Objects of Nationalisation: As per the then Prime Minister An institution, such as the banking systems, which touches and should touch the lives of millions, has necessarily to be inspired by a large social purpose and has to sub-serve national priorities and objectives The broad aim of nationalisation of banks as stated in the preamble of the Banking Companies Act 1970, are to control the heights of the economy and to meet progressively and serve better the needs of development of the economy in conformity with national policy and objectives More specifically, the important objectives of bank nationalisation are: a. the removal of control by a few - the Commercial banks were controlled by a very small number of rich and powerful shareholders who were able to determine the pattern of allocation and investments of bank finance according to their own individual interests and convenience. Concentration of ownership of banks in a few hands was directly responsible for concentration of economic power and the growth of disparities of income and wealth in the country. This was against the Directive Principles of the Indian Constitution which demanded the reduction of concentration of economic power and removal of wide disparities in income and wealth. Provision of adequate credit for agriculture and small industry and exports The commercial banks generally favoured large industrial and business units. Small borrowers were unable to approach the banks and were discriminated against. Such a policy of banks went against the policy of the Government to encourage smallscale and medium industrial units. In spite of the fact, that agriculture was the basic industry in the country, commercial banks generally ignored the credit needs of farmers. the giving of a professional bent to bank management Encouragement of new classes of entrepreneurs - loans and advances were used by the commercial banks to build up the huge industrial empire of business magnates who controlled the banks and there was little or no scope for encouragement of entrepreneurship. the provision of adequate training as well as reasonable terms of service for bank staff

b.

c. d.

e.

Criticisms: a. The Scheme of Social Control over banks has not been given a fair trail b. Foreign banks and the smaller banks are left out of the purview of nationalisation c. Public ownership will lead to inefficiency in the working of banks d. Public ownership will mean elimination of healthy competition and initiative Second Phase of Nationalisation:

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As a further step, GOI had nationalised six more banks, to ensure they fall in line with its goal of attaining national objectives. Achievements In the context of the objectives set before the nationalised banks, it became necessary for them to: reorient the concept of security for loans pay special attention to the growth potential and developmental needs of local areas take better care of the requirements of underdeveloped areas and backwards sections of the population forge close relations with developmental and term financing institutions reach mutual understanding with State Governments, ensure large borrowers do not have more access to resources of the bank than is actually required for productive use prevent use of credit for speculative and other unproductive purposes Banks nationalized under the first phase in 1969:
Allahabad Bank Bank of Baroda Bank of India Bank of Maharashtra Canara bank Central Bank of India Dena Bank Indian Bank Indian Overseas Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India

Banks nationalized under the second phase in 1980

Andhra Bank The Corporation of Bank New Bank of India Punjab and Sind Bank OBC Vijaya Bank

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