Bank Credit, National Policy and Objectives :
Banking institutions are amongst the commanding heights of an economy. They must serve the national policy and objectives. Twenty major banks in India were nationalized “to serve better the needs of development of the economy in conformity with the national policy and objectives.” Necessary changes in the banking policies and practices were urgently necessitated in the wake of nationalization to serve wider social purpose of established democratic socialism in the country.
Significant changes have taken place in the concept of security observed by the bankers in their attitude towards the hitherto weaker and neglected sections of society during the last two decades. Banks have been directed to finance on a large scale agriculturists, small industrialists, professional persons and transporters, etc. Banks have also been asked to help in the implementation of the 20-Point Programme and have been directed to ensure that banks’ advances within the priority sectors are given increasingly to the weaker and underprivileged sections at concessional rate of interest. Security of funds lent is not sought exclusively in the tangible assets of the borrower but also in his technical competence, managerial ability, honesty and integrity. Loans are being given in large numbers for the setting up of small businesses and for starting practice by professional persons. It is to be noted that bank credit has to act as an important instrument for achieving wider social purpose, national policies and objectives. However, the basic principles of sound lending are fundamental and are observed even by the nationalized banks. The ways in which the basic principles are followed, of course, may be modified to suit the needs of the times.
Public Sector Banks are also required, under Section 8 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 in the discharge of their functions, to be guided by such directions in regard to matters of policy involving public interest as the Central Government give. The Central Government and the Reserve Bank have issued a number of directions in this regard, highlighting the social purpose which they have to sub serve.