Bank Nationalisation and Mergers in India: 1949 to 2020

Indian banking has been reshaped twice by the state: once by taking private banks into public ownership, and again by folding those public banks into one another. Nationalisation ran from 1949 to 1980 and was meant to push credit towards agriculture, small industry and the districts the private banks had ignored. Amalgamation ran from 1993 to 2020 and was meant to leave fewer, larger, better capitalised public sector banks. Every banking paper asks from this timeline, and the questions are almost always a year, a number or the name of the bank a smaller bank went into.

How public banking was built

The Reserve Bank of India began as a shareholders' bank on 1 April 1935 under the Reserve Bank of India Act, 1934, and was taken into public ownership on 1 January 1949 by the Reserve Bank of India (Transfer to Public Ownership) Act, 1948. The Banking Regulation Act was passed the same year and remains the law under which banks are licensed, supervised and amalgamated. In 1955 the Imperial Bank of India, itself formed in 1921 from the presidency banks of Bengal, Bombay and Madras, was taken over by the state and renamed the State Bank of India under the State Bank of India Act, 1955, on the recommendation of the All India Rural Credit Survey Committee. The State Bank of India (Subsidiary Banks) Act, 1959 brought the banks of the former princely states in as its associate banks.

The two rounds of nationalisation

On 19 July 1969 the government issued an ordinance nationalising fourteen commercial banks, each with deposits of fifty crore rupees or more. They were Allahabad Bank, Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Dena Bank, Indian Bank, Indian Overseas Bank, Punjab National Bank, Syndicate Bank, United Commercial Bank, Union Bank of India and United Bank of India. The Supreme Court struck the 1969 law down in Rustom Cavasjee Cooper v. Union of India, the Bank Nationalisation case, on the ground that the compensation provided was not adequate, and a fresh Act was passed at once. A second round followed on 15 April 1980, when six banks with deposits of two hundred crore rupees or more were nationalised: Andhra Bank, Corporation Bank, New Bank of India, Oriental Bank of Commerce, Punjab and Sind Bank, and Vijaya Bank.

Institutions that followed

The mergers

The merger of New Bank of India with Punjab National Bank in 1993 was the first amalgamation of two nationalised banks. The 2017 round brought the State Bank of Bikaner and Jaipur, Hyderabad, Mysore, Patiala and Travancore, along with Bharatiya Mahila Bank, into the State Bank of India. The round that took effect on 1 April 2020 was the largest: four anchor banks absorbed six others and the number of public sector banks came down from twenty-seven in 2017 to twelve.

The law and the private side

• Voluntary amalgamation of two banking companies is sanctioned by the Reserve Bank under Section 44A of the Banking Regulation Act, 1949.
• Section 45 of the same Act lets the Reserve Bank seek a moratorium and place a scheme of compulsory amalgamation for a failing bank before the central government.
• Private banks have merged on the same pattern: Centurion Bank of Punjab into HDFC Bank in 2008, Bank of Rajasthan into ICICI Bank in 2010, ING Vysya into Kotak Mahindra Bank in 2015, and Lakshmi Vilas Bank into DBS Bank India in 2020.
• IDBI Bank was reclassified as a private sector bank in 2019 after the Life Insurance Corporation acquired a majority stake in it.
• HDFC Limited, the housing finance company, was merged into HDFC Bank in 2023, the largest merger in Indian corporate history at the time.