History of Indian Banking System

History of Indian Banking System in details :-

History of Banking

Table of Contents

Banks are the oldest form of financial intermediaries in India. The Bank plays an important role in the mobilization of deposits and disbursement of credit to various sectors of the country. A bank is a financial institution whose purpose to receive a deposit and channels those deposits into lending activities, either directly by loaning or indirectly through the capital market. such as wealth management, currency exchange, safe deposit boxes, and more.

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In India, the reserve bank is the central banking institution or bank of the country. the RBI regulates and operates the banking system in India. it supervises and administers exchange control and banking regulations and administers the government’s monetary policy. the Banking system in India works according to the guidelines issued by the RBI.

Note: Reserve Bank of India (RBI) was established in 1935. Banking Regulation Act 1949.

Indian Banking system can be divided into two eras:-

Pre- Independence and,
Post- Independence

Pre- Independence Banking (1786- 1947):

The first bank of India was the “Bank of Hindustan” established in 1770 and located in the then. The Indian capital, Calcutta. however, this bank failed to work and ceased opreations in 1832.

During the Pre-independence period over 600 banks had been registered in the country. but only a few managed to survive.

Following the path of bank of hindustan, various other banks were established in India they were.

The general bank of India(1786-1791)
oudh commercial Bank(1881-1958)
Bank of Bengal(1809)
Bank of Bombay(1840)
Bank of Madras(1843)

During the British rule of India, the east India company had established three Banks: Bank of Bengal, Bank of Bombay and Bank of Madras and called them presidential Banks.

These three Banks were later merged into one single bank in 1921, which was called the “Imperial bank of India”.

The imperial Bank of India was later nationalised in 1955 and was named the state Bank of India, which is currently the largest public sector Bank.

Pre-Independence banks in India:

Allahabad Bank(1865)
Punjab national Bank(1894)
Bank of India(1906)
Central Bank of India(1911)
Canara Bank(1906)
Bank of Baroda(1908)

In 1926 Hiltton young committee submitted report regarding RBI act was passed in 1934 on recommendation of Hiltton young commission RBI was setup in 1st Apr. 1935.

RBI was established with intial share worth with 5 lakh. Rs.100 shares dividend.

Post- Independence period(1947-1991)

At the time, when India got independence, all the major banks of the country were led privately which was a cause of concern as the people belonging to rural areas were still dependent on money lenders for financial assistance.

with an aim to solve this problem, the then government decided to nationalise the Banks. these banks were nationalised under the regulation act 1949 whereas the reserve bank of India was nationalised in 1949. the formation of state Bank of India in 1955 and other 14 banks were nationalized between the time duration of 1969 to 1991. these were the banks whose national deposits were more then 50 crore, the 14 banks nationalised in 1969 are….

Allahabad Bank
Bank of India
Bank of Baroda
Bank of Maharastra
Central Bank of India
Canara Bank
Dena Bank
Indian overseas Bank
Indian Bank
Punjab national Bank
Syndicate Bank
Union Bank of India
United Bank
Uco Bank

In the year 1980 another 6 banks were nationalised these banks are included.

Andhra Bank
Corporation Bank
New Bank of India
Oriental Bank of commerce
Punjab & sindh Bank
Vijya Bank

Apart from the above mentioned 20 banks, ther were nationalised in 1959.

State Bank of patiala
State Bank of Hydrabad
State Bank of Bikaner & jaipur
State Bank of Mysore
State Bank of Travancore
State Bank of Saurashtra
State Bank of Indore

All these banks were later merged with the state Bank of India in 2017, except for the State Bank of Saurastra, which was merged in 2008 and State Bank of Indore, which was merged in 2010.

Note: The regional rural Banks in India were established in the year 1975 for the development of rural areas in India.

Impact of Nationalisation:

There were various reasons why the government chose to nationalised the banks. given below is the impact of nationalising Banks in India.

This lead to an increasing in funds and there by increasing the economic condition of the country
Increased Efficiency
Helped in basting the rural and agricultural sector of the country.
It opened up a major employment opportunity for the people.
The government used profit gained by Banks for the betterment of the people.
The competition was decreased, and work efficiency had increased.
This post Independence phase was the one that led to major developments in the banking sector of India and also in the evolution of the Banking sector.

Liberalisations Period (1991- Till Date):

The Banks were established in the country, regular monitoring and regulations need to be followed to continue the profits provided by the banking sector. the last phase or the ongoing phase of the banking sector development plays a significant role.

To provide stability and profitability to the Nationalised public sector Banks, the government decided to set up a committee under the leadership of shri. M Narasimham to manage the various reforms in the Indian Banking industry.

The Biggest development was the introduction of private sector banks in India. RBI gave license to established themselves in the country. these banks included.

Global trust Bank
ICICI Bank
HDFC Bank
Axis Bank
Bank of Punjab
IndusInd Bank
Centurion Bank
IDBI Bank
Times Bank
Development credit Bank

The other measure taken include:

Setting up of branches of the various foreign Bank in India.
No more nationalisation of Banks could be done.
The committiee announced that RBI and government would treat both public and private sector banks, equally.
Any foreign Bank could start joint ventures with Indian Banks.
Payments bank were introduced with the development in the field of banking and technology.
Small finance Banks were allowed to set their branches acrross India.
A major part of Indian banking moved online with Internet Banking and alls available for fund transfer.

These, the history of banking in India shows that with time and the needs of people, major developments have been done in the banking sector with an aim to prosper it.

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