Nationalisation of Banks

Banks play a crucial role in the growth of economy as they deal with the money. Banks
provide guarantee to keep our money safe and in return, give interest. Banks also lend money
to the people, institutions and others to set up businesses and for a variety of commercial and
personal activities. Therefore, banks directly contribute to the various financial aspects of our
lives.
It was on July 19, 1969, when then prime minister Indira Gandhi announced the
nationalisation of 14 commercial Indian banks with deposits of over Rs 50 crores.
Before nationalisation, barring the State Bank of India most banks were privately owned and
benefitted the rich and the powerful. Nationalisation of 15 private banks in July, 1969,
followed by six more later, revolutionised the Indian banking sector, created huge
employment, extended credit and benefitted Agriculture and the poor.
Before the government nationalised banks, corporate families controlled banking systems in
India. It effectively ensured a monopoly over capital. Bank nationalisation helped make the
economy more equitable and opened bank credit to even people without connections.
Bank nationalisation helped in more equitable regional growth since banking system was
concentrated in urban centres and that too largely in the West and the North. As per RBI
records, there were 1833 banks in rural areas in the country in 1969, which increased to
33,004 by 1995 and continued to grow over the next decade. Government banking improved
working conditions of the employees also in the banking sector. The state ensured higher
wages, security of services and other fringe benefits.

Unhealthy competition among industrialists injured the interest of the public which was
measured and mitigated by state ownership. Centralised management was made possible due
to coordination in nationalised banks. It helped provide uniform services throughout the
country. It thus enabled the state to solve the problems of organisation, capital, labour
operation and marketing.

Nationalisation ensured uniform banking services and reached banking services to different
corners of the country. Banking services were placed within reach of people in rural areas and
reduced their dependence on moneylenders. Private banks were averse to lend to
Agriculturists and to the core sector of steel and coal, which required huge investment.
Nationalisation made funds available to these sectors.

It enabled rapid increase in the number of banking offices in rural and semi-urban areas and
helped considerably in deposit mobilisation with the added benefit of the expansion of
personal loans giving a fillip to consumption.

Bank nationalisation has also received its share of criticism from time to time, and it is said
that the then government had taken this step for political gains. Nationalisation has led to a
decline in the efficiency and profitability of banks.

Simultaneously, lack of responsibility and initiative, red tape, and excessive delays have
become common features of nationalised banks.
Nationalisation of banks has reduced the competition among banks to a great extent. At the
same time, it has greatly increased political interference and bureaucracy in the functioning of
the banking system.

Banks have been misused for political purposes. It has also aggravated the problem of non-
performing assets (NPA), with scams becoming common in public sector banks. These banks
are now grappling with the problems of huge overdue loans and financially unviable
branches.

The present government is emphasising on the privatisation of banks, but it is not hidden
from anyone how the private and public sector banks have performed in times of crisis,
including the covid-19 pandemic.

The government should not rush with the privatisation of banks; rather it should focus on
comprehensive governance reforms, because if the banking sector is run by independent
boards and in a dynamic manner, then public sector banks can also work like any other
private bank.
Since Indira Gandhi nationalised 14 public sector banks more than fifty years ago, the
measure has continued to divide opinion, with some criticising it as a failure and others
hailing it as a landmark decision. Numerous PSB measures are being implemented by the
administration, most notably the EASE reforms, which are now in their fifth year. This has
generated favourable results. As of March 2022, all PSBs were profitable, and the quality of
their assets has significantly improved. Instead of privatising government-owned banks, the
time has come to appoint the right individuals to the appropriate positions in order to achieve
higher outcomes and undertake more changes.
Nationalisation is the process in which the government of a country or a state takes control of
a specific company or industry.
The significant impact of the change was the expansion of banking into the rural areas, as
banks started coming out of cities and began moving to towns and villages.

Artificial intelligence (AI) and machine learning in finance encompasses everything from
chatbot assistants to fraud detection and task automation. Most banks (80%) are highly aware
of the potential benefits presented by AI.

Consumers are hungry for financial independence, and providing the ability to manage one’s
financial health is the driving force behind adoption of AI in personal finance. Whether
offering 24/7 financial guidance via chatbots powered by natural language processing or
personalizing insights for wealth management solutions, AI is a necessity for any financial
institution looking to be a top player in the industry.

One of the most significant business cases for AI in finance is its ability to prevent fraud and
cyberattacks. Consumers look for banks and other financial services that provide secure
accounts, especially with online payment fraud losses expected to jump to $48 billion per
year by 2023, according to Insider Intelligence. AI has the ability to analyze and single-out
irregularities in patterns that would otherwise go unnoticed by humans.

AI is particularly helpful in corporate finance as it can better predict and assess loan risks.
For companies looking to increase their value, AI technologies such as machine learning can
help improve loan underwriting and reduce financial risk. AI can also lessen financial crime
through advanced fraud detection and spot anomalous activity as company accountants,
analysts, treasurers, and investors work toward long-term growth.

Between growing consumer demand for digital offerings, and the threat of tech-savvy
startups, FIs are rapidly adopting digital services—by 2021, global banks’ IT budgets will
surge to $297 billion.
With millennials and Gen Zers quickly becoming banks’ largest addressable consumer group
in the US, FIs are being pushed to increase their IT and AI budgets to meet higher digital
standards. These younger consumers prefer digital banking channels, with a massive 78% of
millennials never going to a branch if they can help it.
And while the migration from traditional banking channels to online and mobile banking was
underway pre-pandemic due to the growing opportunity among digitally native consumers,
the coronavirus dramatically amplified the move as stay-at-home orders were implemented
across the country and consumers sought more self-service options. Insider Intelligence
estimates both online and mobile banking adoption among US consumers will rise by 2024,
reaching 72.8% and 58.1%, respectively—making AI implementation critical for FIs looking
to be successful and competitive in the evolving industry.

Blockchain

On the back of substantial recent growth, the cryptocurrency market is now worth trillions of
dollars. Much of that success comes from all the potential uses for its underlying blockchain
technology. Because blockchains were first introduced with digital currencies, it makes sense
that blockchain applications in finance are some of its most promising uses.
A simple explanation of blockchain is that it's a decentralized ledger that records transactions.
For financial service companies, this technology could be a path to faster and cheaper
transactions, automated contracts, and greater security. Although blockchain technology still
has a long way to go for widespread adoption, it's already being used by quite a few financial
institutions.
With the advantages it offers, blockchain could have a massive impact on the financial
services industry. Here are the main benefits of blockchain in finance:
1. It can make the payment process more efficient. Many blockchains are capable of settling
transactions in seconds at costs of $0.01 or less, saving money for both the financial
companies and the customers involved.
2. It can help financial institutions save on international transactions. Blockchain
deployments are projected to save banks $27 billion on cross-border transactions by the end
of 2030.
3. Since blockchains provide a distributed, inalterable record of transactions, financial
institutions can use them for recordkeeping and reporting to regulatory agencies.
4. The faster transaction settlements offered by blockchain technology can improve various
types of financial services. Lenders will be able to fund loans more quickly, vendors will
receive payments earlier, and stock exchanges can settle securities purchases and sales almost
immediately.

Climate
At a broad level, climate change refers to changes in the usual conditions of nature of the
Earth's oceans, fresh water, and atmosphere. These changes include, for example, increases in
average global temperatures, the frequency and severity of major storms, and the level or
acidity of oceans, among many other effects. There is a strong scientific consensus that the
global climate has already changed substantially over the past century and that future changes
should be expected as human-caused emissions of greenhouse gases continue
By themselves, climate-related economic or financial risks need not affect financial stability;
the economy can experience a decline in output, and investors can experience losses, without
these effects being amplified by the financial system. Under some conditions, however, these
risks could increase financial-system vulnerabilities through losses to levered financial
intermediaries, disruption in financial market functioning, or sudden repricing of large classes
of assets.
This cascade of consequences fits within the Federal Reserve's financial stability monitoring
framework in two ways. First, climate risks can manifest as shocks to the financial system.
Acute hazards, such as storms, floods, or wildfires, can quickly change or reveal new
information about future economic conditions or the value of real or financial assets. With the
potential for sudden large shifts in perceptions of risk, chronic hazards (like a slow increase
in mean temperatures, or rising sea levels) could produce abrupt repricing events, if investor
expectations or sentiment about the physical risks change abruptly. While these examples
focus on physical risks, shocks to the financial system may emerge from a broader set of
climate risks. These additional risks include the emergence of climate-related liability risks or
future changes in climate policies. Like all financial shocks, it is difficult to predict how and
when these broader set of climate risks may be realized as financial shocks.
Second, climate risks can also increase financial system vulnerabilities that could transmit
and amplify shocks. The examples below illustrate features of climate change that increase
the probability of asset mispricing and higher nonfinancial and financial leverage, which
interconnectedness and reduced diversification could amplify; opacity of exposures,
mispricing etc.