Nationalization of Banks In Pakistan.Nationalization means the transfer of any property or institution from private to state ownership. In Pakistan, 13 commercial banks of Pakistani origin were nationalized on January 1, 1974. Under this scheme the smaller banks were merged with big banks and as a result 5 units were formed. These banks were National Bank of Pakistan, Habib Bank Ltd., United Bank Ltd., Muslim Commercial Bank Ltd. and Allied Bank of Pakistan Ltd.
Nationalization of Banks In Pakistan
The causes of nationalization of commercial banks are as under:
- Ineffective Central Bank Control:
Before nationalization the control of central bank over commercial bank was very weak. Commercial banks did not give due importance to the policies given by central bank.
- Loans to Relatives:
The high-ranking bank officials issued large amount of advances to their relatives but a major portion of such loan was not returned.
- Concentration of Wealth:
A few people were using the national savings in their own interest. According to an estimate, 200 families borrowed 75% of the total loans,
which cause concentration of wealth. To remove this, the government decided for nationalization.
- Misuse of Credit:
The banks issued loans almost blindly. In many cases, not much importance was given to securities and majority of loans issued were considered irrecoverable.
- Improper Allocation:
The commercial banks had been advancing most of the loans to big industrialists, exporters and importers but agriculture sector was neglected.
- Protection of Black Money:
Private banks of the country protected the black money of high- ranking officials even the government was not legally allowed to check the balance of accounts.
- Favouritism:
The bank owners provided key posts to their relatives and friends. They were not professionals. Therefore they were unable to improve the efficiency of banks.
- Wasteful Competition:
Banks engaged themselves in a wasteful competition race. All banks, for wide scale advertisement and publicity, made heavy expenditures.
- Overseas Branches:
Much of the overseas branches were working at loss. The bank officers visit in order to audit branches and the whole expenses of their personal nature were charged to bank.
- Lack of Understanding:
The commercial banks were not used to keep any contact regarding banking policies. Moreover they were offering Ioans at different rates of interest. Due to which the country was facing difficulty in economic development.
MERITS OF NATIONALIZATION
Following are the merits or advantages of nationalization.
- Loans and Advances:
The state Bank of Pakistan declares the loan policy for the banks. All banks have to follow the policy. Therefore the loans are provided to all sectors of the economy
- Banking Management:
The government has setup executive board to look after the administrative work of the banks. The business of banking has improved due to better management.
- Rural Bank Branches:
The nationalized commercial banks have opened many branches in rural areas. It is due to the rural branches that idle funds are being put into productive uses.
- Control Over Expenses:
The expenses of nationalized banks have been controlled to a large extent. The useless expenses on entertainment and advertisement have been reduced which improved the rate of profit for banks.
- Foreign Bank Branches:
The performance of foreign bank branches has improved. The employees are posted on merit basis for increasing the efficiency. The number of foreign branches has also increased.
- Fair Distribution of Credit:
The process of nationalization helped in fair distribution of credit, which was concentrated in few hands and was widely used for unproductive purposes.
- Increase in Employment:
Nationalization resulted in creation of different jobs opportunities for talented and educated people in banks. As far as new branches are opened, hundreds of people got employment.
- Increase in Govt. Income:
Before nationalization the total profit of the banks was gone into the pockets of their owners. Now the income of banks is transferred to govt, treasury, which is used for the common interest of nation.
- Increase in Public Confidence:
After nationalization the people started to show more confidence in .banks by depositing their savings into banks, because they know that the banks are working under the supervision of govt.
- End of Corruption:
The traders have to stop their malpractices regarding the import and export of goods, because they realized that their corruption would not be protected any move.
- Black Money:
Before nationalization, the corrupt officers and traders were used to keep their black money (money earned from unfair means) into banks, but now the banks are not in a position to provide any protection to black money because the govt, can check the accounts of banks at any time.
- Price Less Services:
The money incurred on unproductive activities by commercial banks before nationalization is now put to provide almost cost free banking services to people.
DEMERITS OF NATIONALIZATION
Following are the demerits or disadvantages of nationalization:
- Low Efficiency of Employees:
Nationalization transformed the bank officials into govt, officials. The jobs were fully secured, which reduces the efficiency of employees. They did not take much pain to design effective policies.
- Low Level of Competition:
Healthy competition is necessary for development and promotion. But as nationalized banks were run directly by state so less attention was given to attractive effective policies.
- Corruption and Bad Debts:
Nationalization resulted in high level of corruption and bad debts. Credit was generally misused and in many cases principal sum was not returned.
- Political Pressure:
As banks are taken over by state, this flourished bureaucratic structure in them. Administrative defaults produced seriously bad effects on the efficiency of these banks.
- Nepotism and Favouritism:
Nationalization results in a great degree of nepotism and favouritism. Political leaders have influence on the state authorities and they interfered in the working of banks.
- Unfair Distribution of Credit:
It was announced at the time of nationalization that unfair distribution of credit should be eliminated. But in actual, the big zmindars and officers have taken loans by using their powerful resources.
- Difficulty in Getting Loan:
After nationalization, the procedure of getting loan became complicated. Due to which the needy business community could not get loans and the country remained underdeveloped in many sectors.