In India, 14 Banks were nationalized in 1969, and again in 1980, 6 more banks were nationalized. Various objectives were listed to be achieved through this process. Then, why this trend was reversed again, and entry of private players in the banking sector was allowed again. Moreover, now again, the wave of consolidation, merging the Public Sector Banks, is going on, what are the reasons behind these happenings.
Do we have some empirical evidence of such happenings worldwide, and the impact of that?
In Kazakhstan, the nationalization of banks was a forced measure, a response to their financial problems, which banks could not solve on their own. The government could not allow the largest of the troubled banks to fail, so it was forced to save them with state money, but in exchange took control of them and nationalized them. After recovery, these banks were again privatized, and the state was withdrawing capital from them.
One of the major reasons was the deteriorating health of the banks and the Governments inability for continuous recapitalization.
Apart from the inefficiency of the PSBs, the Indian government nationalised public sector banks to conserve taxpayer money that would be spent to fund public sector banks.
When a government is faced with low revenue and huge spending, they reduce government expenditure by nationalising government-owned institutions and agencies.
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