The growth of commercial banking during the first three plan periods has been lopsided. Without demanding proper security some banks were diverting funds to large and medium industries.

Bank branches were opened only in big cities. Rural areas were neglected. Banks made discrimination between private sector and public sector between rural and urban and between agriculture, trade and industry. The banks were financing those industries which were producing luxury goods. The government felt that this type of growth was not in consonance with planning. The growth appeared to be defiant in many respects. There was a growing demand for the bank credit for the development of agriculture, industry and selfemployment.

So it was essential for teh banking system to attract savings. Therefore, the government felt that need for social banking as against capitalist banking. A scheme of social control was introduced in 1967. The government enacted Banking Laws Amendment Act in 1968.
This act has given more power to the government to control banking. The objectives of this Act was to ensure more equitable distribution of the resources of the banking system. The priority sectors like agriculture, small-scale industry, public sector and self-employment were to receive their due share in obtaining bank finance. Apart from this the banks are required to reconstitute their board of directors.

The government set up National credit council in 1968. The Finance Minister was the chairman and the Governor of the Reserve Bank was the vice chairman of the council.
The main functions of the National credit council were:

1. assessing the volume of credit required for the economy as a whole.

2. providing guidelines for the distribution of credit to the priority sector.

3. ensuring equitable distribution of credit in the economy.

• Written by Shobby.
• In category Small Business.
• 14 years ago.

Hot Hits: 22866

Like it on Facebook, Tweet it or share this article on other bookmarking websites.