- Significance:
- Objective: “Control the commanding heights of the economy.”
- Aimed to meet development needs in line with national policy.
- Served to intensify social objective of meeting credit demands for productive purposes.
- Led to rapid branch expansion, especially in rural and urban areas.
- Channeled credit according to plan priorities.
- Long-term Impact:
- Rapid growth in deposits mobilized by banks.
- Credit expansion, particularly in priority sectors.
- Breadth and scope of Indian banking expanded significantly.
- However, banks became unprofitable, inefficient, and unsound.
- This was due to stringent regulations, low interest rates on government bonds, and directed lending.
- Fostered rigidities and inefficiencies in the commercial banking system.