by

            Rajesh Goyal   

Recently one of our readers sent me an interesting question : What is is the difference between nationalized banks and public sector banks?  I had to pause for few moments and tried to assimilate so that I can answer the same in few sentences.  Soon I realised that it is not that simple to make this understand to a young student who does not have a background of banking history.   May be even most of the bankers will fumble for words if they are asked this question.  Thus, I decided to attempt this basic question for my young readers.   I have never come across such explanation at any time.   Internet material is full of confusion and is thus not realiable for a young banker in this respect.    Therefore, my other fellow bankers will be free to further add anything which can make the life easier for young students.

Let me first of all explain, WHAT IS NATIONALIZATION ?   Nationalization is a process whereby a national government or State takes over the private industry, organisation or assets into public ownership by an Act or ordinance or some other kind of orders.  This strategy has been frequently adopted by socialist governments for transition from capitalism to socialism.   

In India since independence following major nationalizations have taken place :-

1949 : RBI was nationalized (RBI was state owned at the time of Indian independence).

1953 : Air India was nationalised  under the Air Corporations Act 1953

1955 : Control of Imperial Bank of India was acquired by RBI

1969 : 14 Indian private banks were nationalised;

1972 : 106 insurance companies were nationalised into four insurance companies

1973 : Coal Industry and Oil companies were nationalised

1980 : 6 more Indian private banks were nationalised

Thus, now it becomes easier to understand that all those banks which were taken over through Banking companies (Acquisition and Transfer of Undertaking) Bill are called nationalised banks.    GoI issued an Ordinance (Banking Companies (Acquisition and Transfer of Undertakings) Ordiance, 1969, and nationalised 14 largest commercial banks in India from the midnight of 19th July, 1969.  These banks at that time contained 85%of bank deposits in India.   Similarly in 1980, GoI again nationalised 6 more banks.   Thus, in total 20 banks were nationalised.  Out of these New Bank of India  was merged with PNB in 1993.  Thus, now strictly speaking 19 nationalized banks are in existence.  RBI on its website also lists under "Nationalised Banks" category only these 19 banks. (For SBI see below)  

The banks which falls into the category of Nationalized Banks are:-

Originally Nationalised Banks But Now Not in Existence as they have merged :

00 New Bank of India (Merged into Punjab National Bank in 1993)

What are Public Sector Banks :

We can define Public Sector Banks (PSBs) in India  are banks where a majority stake (i.e. more than 50%) is held by a government.   Thus at present all the nationalised banks are Public Sector banks.   In addition to these, we can also say that  IDBI Bank Ltd  and SBI are too Public Sector Bank (though not nationalised bank) as GoI has over 50% stake in  these bank too.

Status of State Bank of India:  At the time of independence, this bank was known as Imperial Bank of India and was a Joint Stock Company.  In 1955, by provisions of the State Bank of India Act 1955, Reserve Bank of India acquired a controlling interest in the Imperial Bank of India.   On 30th April 1955, the Imperial Bank of India became State Bank of India.   RBI continued to have controlling interest in SBI till recently when Government of India decided to acquire RBI's stake in SBI so as to remove any conflict of interest (as RBI is the

regulatory authority of even SBI).

Status of SBI Subsidiaries : It was in 1959 that government passed State Bank of India (Subsidiary Banks) Act and made  certain princely state level Banks as associates of SBI.   The seven banks that became the associate banks orginally belonged to princely states until the government took over them between 1959 and May 1960.  This was done to expand the base of SBI into rural areas.   These seven subsidiaries continued till 2008, when the process of consolidation of SBI began with the merger of subsidiaries.   State Bank of Saurashtra merged with SBI in 2008 and State Bank of Indore merged in 2010.    Thus, at the end of 2012, there are 5 State bank subsidiaries.   In 2013, State Bank of Hyderabad or some other subsidiary may be merged into  SBI.

(A) State Bank of India (SBI)

Subsidiaries / Associates  of SBI :

1. State Bank of Bikaner & Jaipur
2. State Bank of Hyderabad
3. State Bank of Mysore
4. State Bank of Patiala
5. State Bank of Travancore
 

SBI has controlling interest in these subsidiaries ranging from 75% to 100%.   As on 30th June 2011, the five Associate Banks had a combined network of 4748 branches in India which are on core banking and 4713 ATMs networked with SBI ATMs providing value added services to clientele.  The combined net profit of these banks was Rs735.79 crores as on 30th June, 2011.

Originally Subsidiaries / Associates of SBI But Now Not in Existence as they have merged :

00 State Bank of Saurashtra (it merged on 13 August 2008. At the time of the merger, the Bank had a network of 423 branches spread over 15 states and the Union Territory  of Daman and Diu)
00. State Bank of Indore   (It merged on 26th August 2010 and at the time of merger the bank had over 470 branches inmore than 300 cities and towns and its business was over Rs5000 crores)
 

Thus, we can say SBI  by taken over by government much before the nationalisation of private sector, it is usually not classified as Nationalised Bank, and it treated as a separateSBI group for the purpose of statistics.    Five  remaining (at the end of 2012) Subsidiaries of SBI are not separate and thus need not be counted as separate Banks as slowly they are likely to be merged within SBI.   For the purpose of statistics, we should consider SBI as a separate Group (alongwith its five subsidiaries. ).   But SBI will certainly be a Public Sector Bank as GoI holds more than 50% of its shares.

Status of IDBI Bank Ltd.:  Industrial Development Bank of India (IDBI) came into being on 1st July, 1964 as a Development Financial Institutions under IDBI Act 1964.  It was regarded as a Public Financial Institution in terms of Companies Act.  It continued as DFI till 2004, when it was transferred into a Bank.  To convert this into Bank, Industrial Development Bank (Transfer of Undertaking and Repeal) Act 2003 was passed.  In terms of provisions, a new company under the name of Industrial Development Bank of India Ltd. was incorported as a Govt company under the Companies Act on 27th September, 2004, and thus now it came to be known as IDBI Ltd wef 1st October 2004, but it also worked as a Bank (in addition to the role of Financial Institutions) in terms of the Repeal Act.   

WEF 2nd April, 2005, IDBI Bank Ltd. (a wholly owned subsidiary of IDBI Ltd.) was finally amalgamaed with IDBI Ltd. in terms of the provisions of Section 44A of the BR Act 1949.   Thus, now it was known as IDBI Ltd.    In order that the name of the Bank truly reflects the functions it is carrying on, it was decided to change the name to "IDBI Bank Limited" and it became effective from 7th May, 2008.   Thus, now it is functioning as " IDBI Bank Limited".    As it was already a government company since its inception, it will be wrong to call it nationalized bank, but it certainly is a Public Sector Bank as GoI has above 70% shareholding in this Bank.