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Post edited 3:25 am – October 28, 2009 by radar
Post edited 3:25 am – October 28, 2009 by radar
Post edited 3:26 am – October 28, 2009 by radar

The nationalization of some of the commercial banks was not free from the attendant evils. It has blocked flow of funds to sick industrial units, politicized banking institutions and above all has escalated the growing sickness in the banking industry itself.  Today the private sector is given more precedence than in any other time in the past.

The initial enthusiasm in favor of the ‘priority sector lending’ gradually waned because of certain problems faced by the banking sector regarding priority loans with small accounts.  Not only that, the public sector was not able to monitor the distribution, follow up and recovery of these loans.  The commercial banks were squeezed in both ways.

On the one hand, they were forced to keep a higher proportion of deposit which was as high as 53.5 to 55 percent in liquid reserves under a CRR (Cash Reserve Ratio) of 15%.  They therefore, had only about 45 percent of deposits left for loans and other advances.  Even out of these 45 percent deposits, the banks were allowed to allocate a mere 40 percent of their available resources, as loans to the priority sector.

Thus window dressing and manipulation were done in the bank accounts.  Each Chief Executive tried to show that the bank has done better under his reign than that of his predecessor.  Nationalization however, brought about a gradual decline in the quality of customer service.  The security of service, absence of competition, lack of initiative and an indifferent attitude towards bank profitability can be taken as the major reason for the decline in customer service.