The country has accepted economic planning and undertook the responsibility to generate mass scale employment opportunities and alleviate poverty. It wanted the banks -

• To open large number of branches in the rural and semi urban centres and mobilise the savings of the small individuals and provide credit for production support and employment generating programmes.

• To finance employment generating programmes for the poor artisans, retailers and small business.

• To provide credit for agriculture and allied activities, to small-scale industries and technically qualified entrepreneurs and for export promotion.

The Government as part of its economic policies accepted a dominant role for the public sector in the economic development of the country and desired that Commercial banks should serve as instruments or vehicles for implementation of the Government's economic policies. In pursuance of these objectives Government chose to nationalise 14 major commercial banks in the first instance on 19.07.1969 and a second batch of seven banks in the early Eighties.

Nationalisation of banks saw a rapid expansion of banking and banking habits in the country. After two decades of Nationalisation as at the beginning of the year 1991, there were more than 50000 branches of commercial banks, (a ten-fold increase) with a considerable spread in rural and semi-urban centres. Commercial banks accepted a dominant role in financing agriculture and allied activities ushering green revolution with a spurt in agricultural production making the country self-sufficient and surplus thus providing an assured food security, a white revolution taking the country to number one position in the world in the production of milk and milk products.

The aggregate deposits of the Banks which were at a base level of Rs.5300 Crores at the time of Nationalisation spurted to Rs.50,000 Crores (ten fold) by 1995 and Rs.l00,000 Crores by 2000 A.D.

Large scale financing of exports, small scale industries, technical entrepreneurs, self employed professionals, small artisans and retailers created a new segment of prosperity in the country. Today in India there are 200 million persons representing a new middle and upper middle class, with a corresponding reduction in the percentage of people below poverty line.

All these achievements could not have been possible, but for the bold step of Nationalisation and accepting a new culture and policy of development banking by the State-owned Banks.

It was a contrast of good objectives, but wrong internal policies and mismanagement of growth opportunities. Social banking was deemed the opposite of prudent banking. There were annual targets for deposit mobilization, targets for priority sector lending, opening branches in rural and semi-urban centres, but no care for profitability and providing earnings and strengthening the viability and capital base. Earning profits was considered a non-priority.

"The health of banks is determined by many factors, the most significant being a strong capital base, adequate provisioning, the nature of investments made, the quality of asset management, the skill and commitment of officials, quantity and quality of informational data, the internal incentive mechanisms and above all the nature of governmental interference, in particular by the monetary authorities of the country in question."

It is a keen social vision, but total blindness towards maintaining one's own house in order. It was the record of public sector banks. Each and everyone of the above mentioned parameters for healthy development of banking was forsaken.

Since the Seventies the Scheduled Commercial Banks (SCBs) of India functioned totally as captive capsule units cut off from international banking and unable to participate in the structural transformations, the sweeping changes, and the new type of lending products emerging in the global banking Institutions.

Since the beginning of the Eighties, the International Financial Markets are witnessing revolutionary structural changes in terms of financial instruments and the nature of lenders and borrowers. On the one hand there is a declining role for the Banks in direct financial intermediation. On the other hand there is enormous increase in securitised lending, the growth of new financial facilities of raising funds directly from investors. There is also the growth of innovative techniques such as interest rate swaps, financial and foreign exchange futures and foreign exchange and interest rate options.

While such revolutionary changes were taking place in the global arena, the Indian Banking context was completely insulated and kept captive up to the beginning of the Nineties, on account of directed policies on major business and operational matters, in particular those relating to credit, investment, rate of interest etc. Basic policy parameters were decided by RBI and the Finance Ministry and Banks had little options in this respect. This carried Indian Banking two decades behind International banking. This phenomenon had to be urgently remedied in the Nineties, when Government had to introduce the sweeping Reforms in the Financial and Banking Sector.

The individual identities of public sector banks were maintained, but they were regimented and controlled and in fact operated from outside as per the dictations of the Reserve Bank of India and Finance Ministry. Credit dispensation was directed, Rate of Interest to be charged on advances and deposits were decided by RBI, Investments to be made by Banks were directed. Top management and senior executives of the Banks by virtue of this lost completely the skills Initiative or innovative working or to acquire of facing challenges. The twenty-seven public sector banks with the result became co-marching entities and not vibrant mutually competing enterprises.

Individual Banks were not allowed to recruit their work force. Banking Service recruitment Boards (external entities) were set up for this purpose at every Region of the country.

The huge workforce consist predominantly of clerical and class IV staff enjoying a high wage-structure performing simple repetitive manual tasks . In comparison the top executives were remunerated much less than prevailing scales in the market (private sector) such that truly competent professionals were not attracted to the banking fold.

A bane of public sector banking in India is the high level politicalisation of Banks' management. Politicians interfere in high level appointments, promotions to senior positions, and credit provisions to big customers of doubtful integrity and for questionable projects or purposes.

The system of administration resulted in the vesting of arbitrary and unchecked powers to the Chief Executive Officer of the Bank, the Chairman & Managing Director. The Board of Directors consist of incompetent yes men, and do not vest proper control over the affairs of the Institution, despite there being a representative of the Reserve Bank of India and Finance Ministry in the Board of each PSB.

High level corruption in public services marked the order of Indian social structure. The country is rated 71 in the corruption index statistics by the independent N.G.O. Transparency International. Corruption may be everywhere, but we have distinction of being the front-runners in this possessing this infected virus. Corruption pervades as a starting point in the business and industry in India, as pointed out decades before by Santhanam Committee, appointed by the Government of India

Growing indiscipline prevailing at the business and industry adversely affect the entire society and set pace to all our present social problems. Engaged in commercial or industrial activities and dealing with vast resources, business units as part of their industrial, commercial or other activities build wide interactions with the government and public authorities. Prompted by greed and the desire for making quick or easy money, and possessed with vast resources garnered through black money hoarding, there is adequate scope for businessmen and industrialist in this environment to use corrupt ways of getting their things achieved. Corruption is fueled by greed. It is an attempt to look for short cut means for getting quick money. Business and industry promote corruption and public service thrives as the beneficiary of this evil source of earnings. This phenomenon is well documented in Santhanam Committee Report described in detail in my project "Integrity in Public Life & Service."

All these factors collectively and cumulatively contributed to the decay and decline of the strength of PSBs in India until the situation took shape as a crisis in 1992-93 and several government owned banks started showing loss in their working with eroded capital. It was the background for the Government to usher in the Banking and Financial Sector Reforms in the year 1992. This is still a continuous and on-going process and has provided a new lease and hope to rejuvenate the banking system in the country.