Top Menu

9 Major Problems Faced by India’s Nationalized Banks

ADVERTISEMENTS:

The following points highlight the nine major problems faced by India’s nationalized banks.

Problem # 1. Losses in Rural Branches:

Most of the rural branches are running at a loss because of high overheads and prevalence of the barter system in most parts of rural India.

Problem # 2. Large Over-Dues:

The small branches of commercial banks are now faced with a new prob­lem—a large amount of overdue advances to farm­ers. The decision of the former National Front Gov­ernment to waive all loans to farmers up to the value of Rs. 10,000 crores has added to the plight of such banks.

Problem # 3. Non-Performing Assets:

ADVERTISEMENTS:

The commercial banks at present do not have any machinery to ensure that their loans and advances are, in fact, going into productive use in the larger public in­terest. Due to a high proportion of non-performing assets or outstanding due to banks from borrowers they are incurring huge losses. Most of them are also unable to maintain capital adequacy ratio.

Problem # 4. Advance to Priority Sector:

As far as ad­vances to the priority sectors are concerned, the progress has been slow. This is partly attributable to the fact that the bank officials from top to bot­tom could not accept nationalisation gracefully, viz., diversion of a certain portion of resources to the top priority and hitherto neglected sectors. This is also attributable to the poor and unsatis­factory loan recovery rates from the agricultural and small sectors.

Problem # 5. Competition from Non-Banking Financial Institution:

As far as deposit mobilisation is con­cerned, commercial banks have been facing stiff challenges from non-banking financial interme­diaries such as mutual funds, housing finance cor­porations, leasing and investment companies. All these institutions compete closely with commer­cial banks in attracting public deposits and offer higher rates of interest than are paid by commer­cial banks.

Problem # 6. Competition with Foreign Banks:

Foreign banks and the smaller private sector banks have registered higher increase in deposits. One reason seems to be that non-nationalised banks offer bet­ters customer service. This creates the impression that a diversion of deposits from the nationalised banks to other banks has probably taken place.

Problem # 7. Gap between Promise and Performance:

ADVERTISEMENTS:

One major weakness of the nationalised banking system in India is its failure to sustain the desired credit pattern and fill in credit gaps in different sectors. Even though there has been a reorientation of bank objectives, the bank staff has remained virtually static and the bank procedures and prac­tices have continued to remain old and outmoded.

The post-nationalisation period has seen a widen­ing gap between promise and performance. The main reason seems to be the failure of the bank staff to appreciate the new work philosophy and new social objectives.

As Asha Kant has com­mented:

“Area approach, agricultural development branches, village adoption plans, etc., will be of little avail, if the grass-root level staff are not im­bued with the motive and the vision of bringing about a silent revolution in the countryside”.

Problem # 8. Bureaucratisation:

ADVERTISEMENTS:

Another problem faced by the commercial banks is bureaucratisation of the banking system. This is indeed the result of nationalisation. The smooth functioning of banks has been hampered by red-tapism, long delays, lack of initiative and failure to take quick deci­sions.

Problem # 9. Political Pressures:

The smooth work­ing of nationalised banks has also been hampered by growing political pressures from the Centre and the States. Nationalised banks often face lots of difficulties due to various political pressures. Such pressures are created in the selection of personnel and grant of loans to particular parties without considering their creditworthiness.

hit counter