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Social Control in Indian Banking

The banks were directing loans primarily to large and medium industries, neglecting priority sectors like agriculture and small businesses. Many bank directors were themselves industrialists who favored loans to their own industries. The Banking Laws (Amendment) Act of 1969, known as the "social control over banks" aimed to regulate the economy for optimal growth while preventing monopolies. It required whole-time chairmen with banking experience and majority of directors with expertise in fields like agriculture and small businesses. Banks were prohibited from lending to their own directors or companies they held a substantial interest in.

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635 views2 pages

Social Control in Indian Banking

The banks were directing loans primarily to large and medium industries, neglecting priority sectors like agriculture and small businesses. Many bank directors were themselves industrialists who favored loans to their own industries. The Banking Laws (Amendment) Act of 1969, known as the "social control over banks" aimed to regulate the economy for optimal growth while preventing monopolies. It required whole-time chairmen with banking experience and majority of directors with expertise in fields like agriculture and small businesses. Banks were prohibited from lending to their own directors or companies they held a substantial interest in.

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HarshSuryavanshi
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Short notes on Social Control over Banks

NUPUR SINGH
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The banks are the custodians of savings and powerful institutions to provide credit. They mobilise
the resources from all the sections of the community by way of deposits and channelise them to
industries and others by way of granting loans. In 1955 the Imperial Bank of India was nationalised
and SBI was constituted.

It was observed that the commercial banks were directing their advances to the large and medium
scale industries and the priority sectors such as agriculture, small-scale industries and exports were
neglected.

The chairmen and directors of banks were mostly industrialists and many of them were interested in
sanctioning large amount of loans and advances to the industries with which they were connected.

To overcome these deficiencies found in the working of the banks, the Banking Laws (Amendment)
Act was passed in December 1968 and came into force on 1-2-1969. It is known as the scheme of
'social control' over the banks.

The then deputy Prime Minister, Mr. Morarji Desai made a statement in the Parliament on the eve of
introducing the bill to amend the banking laws Act.

He explained that the aim of social control was, "to regulate our social and economic life so as to
attain the optimum growth rate for our economy and to prevent at the same time monopolistic trend,
concentration of economic power and misdirection of resources".

The following are the main provisions of this amendment,

Bigger banks had to be managed by whole time chairman possessing special knowledge and practical
experience of the working of a banking company or of finance, economics or business
administration.

The majority of directors had to be persons with special knowledge or practical experience in any of
the areas such as accountancy, agriculture and rural economy, banking, co-operative, economics,
finance, law, small scale industries etc.

The banks were also prohibited from making any loans or advances, secured or unsecured to their
directors or to any companies in which they have substantial interest.

https://www.irda.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?
page=PageNo101&mid=1.2
http://www.bankexamstoday.com/2015/09/banking-ombudsman.html
https://topcorporateadvocatesopinion.wordpress.com/2015/04/30/importance
-of-banking-ombudsman-scheme-in-india/
https://www.pagalguy.com/news/all-you-need-to-know-about-npa-how-to-
reduce-npa-31309774
http://freebcomnotes.blogspot.in/2017/02/nationalisation-of-banks-in-
india.html
http://www.sbank.in/2015/02/reasons-for-nationalisation-of-banks.html
http://shodhganga.inflibnet.ac.in/bitstream/10603/11314/5/05_chapter1.pdf

http://www.legalindia.com/recovery-of-dues-by-banks/

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