The Turnaround of Indian Bank

After 1947, the RBI and the State Bank of India (SBI)⁹ played a prominent role in the Indian banking sector along with other private banks. In keeping with the country's principle of socialism, the GoI undertook nationalization of several private banks in 1969. In the first phase of the nationalization program, 14 banks were taken over by the government.

The second phase of nationalization was initiated in 1980, when six other banks were made PSBs. This brought the number of PSBs to 28 - 20 nationalized banks and the eight associate banks of SBI. In 1993, the New Bank of India merged with the Punjab National Bank to form a single entity, bringing down the number of PSBs to 27.

With branches numbering well over 60,000 and deposits of Rs 1, 10,000 crore, PSBs held a combined market share of 90 percent by the early 1990s. One important reason behind the continued success of PSBs was the assistance and backing of the government. According to analysts, most PSBs depended on the government for their additional capital requirements and received regular infusion of funds to maintain capital adequacy. Apart from a few cases, where additional capital was needed to support a growing volume of business, most of the banks depended on additional funds to sustain their regular business, which was on the decline because of chronic weaknesses in the banks...