On the midnight of July 19, 1969, Indira Gandhi’s government nationalised 14 banks, each with reserves of more than Rs.50 crore. An authorised history of the Reserve Bank of India calls the action “the single most important economic decision taken by any government since 1947.” It goes on to state that “not even the reforms of 1991 are comparable in their consequences — political, social and, of course, economic”.
The move was among several socialist initiatives taken by the besieged Prime Minister to shore up her popularity as she fought to strengthen her position against the “Syndicate”, a group of powerful leaders within the Congress. She also wanted to regain the ground lost by the Congress in the 1967 election. Morarji Desai, who was opposed to bank nationalisation, was divested of the Finance portfolio before the decision was announced.
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The move increased the reach of banking in rural areas. The number of public sector banks was increased to 22 and these collectively held 84 per cent of the total deposits and managed 82 per cent of the bank branches in the country.
Next came another populist move to abolish the generous privy purses that were paid to princes who had acceded to India in 1947-48. Indira Gandhi did this by ensuring the passage of the 26th Constitutional Amendment in 1971 in the face of severe opposition from the erstwhile rulers and their supporters. The discontent this spawned would later add teeth to the Indian right wing.
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In her third term as premier, Indira Gandhi effected a second round of bank nationalisation when six more commercial banks were brought under government control in 1980.
