Every year, July 19 is celebrated as Bank Nationalisation Day, commemorating the contributions of nationalised banks — known as public sector banks (PSBs) — in steering the economy’s socioeconomic transformation.The year 2026 marks the 57th Bank Nationalisation Day. Looking back at the significant contributions of PSBs to financial inclusion in the post-nationalisation era, their future role could be equally critical in realising the vision of Viksit Bharat – 2047, which aims to transform the domestic economy into the league of developed economies. A recap of the transition of PSBs over the last 57 years is a story of challenges and opportunities.Evolution of bankingThe journey began with the formation of the Bank of Bengal (1806), the Bank of Bombay (1840), and the Bank of Madras (1843), which were merged into the Imperial Bank of India (1921). It served as both a commercial bank and a central bank until the formation of the Reserve Bank of India (RBI) in 1935. Subsequently, after Independence, the State Bank of India Act was passed in 1955 to convert the Imperial Bank of India into the State Bank of India, laying the foundation for state-owned banks in India.In the meantime, during the Swadeshi movement, many private banks were formed by visionaries of yesteryear. Some of them survived to fund industrial giants, and when efforts to ensure an equitable flow of institutional credit to underserved segments in the hinterland failed, 14 major commercial banks were nationalised by ordinance on 19th/20th July, 1969. Another set of six commercial banks was nationalised in April 1980, forming a strong network of 27 PSBs, including the SBI and its associate banks.Growth of banksIn July 1969, the banking system was small, with 8,187 bank branches, deposits of ₹4,684 crore, and credit of ₹3,600 crore. Only 17 per cent of bank branches were in rural areas, which inhibited the flow of credit. In line with the spirit of nationalisation, RBI shifted its urban-centric branch expansion policy to aggressive branch expansion.The concept of Priority Sector Lending (PSL) was institutionalised in 1972. Banks were mandated in 1974 to lend to identified priority sectors up to 33.3 per cent of total bank credit. This mandated priority sector lending limit was raised to 40 per cent of total credit to flow to this sector. Later, it was raised to 40 per cent of total credit allocation to identified priority sectors in 1980.To focus on the flow of credit to rural and semi-urban areas, the Lead Bank Scheme and Service Area Approach (SAA) were adopted in 1989, assigning clusters of villages to specific rural bank branches to streamline localised credit delivery. Another layer of banking was formed in rural areas by opening Regional Rural Banks (RRBs) from 1975 onward, combining the local feel of cooperatives with the professional liquidity of commercial banks and accelerating the growth of rural networks.The banking sector grew rapidly from 1969 to 1991-92, supported by numerous pro-growth policies and regulatory support. By March 1992, the number of bank branches reached 60,600, with 58 per cent in rural and semi-urban centres. Corresponding growth in deposits reached ₹2.3 trillion, and advances reached ₹1.25 trillion.Bank reformsDuring the post-nationalisation banking phase, the direction of growth could successfully democratise credit flow to lower strata of society and mobilise massive national savings, but in the process eroded profitability and began to accumulate a high proportion of non-performing assets (NPAs).This set the stage for the 1991 Narasimham Committee reforms, which marked the true “liberalisation” of banking — shifting the RBI’s role from a rigid administrative allocator of branches and credit to prudential supervision and granting banks operational autonomy to open branches based on commercial viability.Era of consolidationWhen PSBs were calibrating internal operational structure to balance bank reforms with continued thrust on socioeconomic transformation by integrating interoperable core banking technology to provide anywhere/anytime banking competing with their new generation private peers, they had to undergo intense phase of consolidation reducing the number of PSBs from 27 in March 2017 to 12 by March 2021 to achieve economies of scale and enhance operational efficiency.Even amid tectonic multiple challenges, PSBs maintained steadfast focus to leverage technology to develop a strong base of alternative delivery channels, expanding the network of ATMs, Micro ATMs, POS terminals, digital wallets, internet banking, mobile apps, and digital lending apps to provide digital banking services.Despite the entry of new-generation banks, differentiated banks, stronger RRBs, and NBFCs, PSBs continue to hold 59 per cent of banking assets, 58.5 per cent of deposits, and 54.5 per cent of advances. Out of 1,60,000 bank branches, PSBs account for 62 per cent. Their share in rural and semi-urban bank branches is higher, at 72 per cent and 62 per cent, respectively.The kind of business process re-engineering undertaken by PSBs to expand digital banking services by exploring the Jandhan, Aadhaar, and Mobile (JAM) trinity and digital public infrastructure (DPI) demonstrates their change management acumen and an unwavering commitment to striking a balance between socioeconomic banking and stakeholder protection.Nationalisation of banks might be a good move, but kudos to PSBs for meeting intended objectives in the letter and spirit alleviating poverty at the bottom of the pyramid. PSBs are thus well-poised to potentially become effective economic change agents to realise the goals set under Viksit Bharat-2047 if policy support and inclusive stakeholder participation are extended.The writer is Adjunct Professor, Institute of Insurance and Risk Management, Hyderabad. Views are personalPublished on July 14, 2026