History of Indian Banking System

History of Indian Banking System in details:-

History of Banking

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 is to receive deposits and channel 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.

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

The 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 there. The Indian capital, Calcutta. however, this bank failed to work and ceased operations in 1832.

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

Following the path of the Bank of Hindustan, various other banks were established in India they were.

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• 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 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, the Hiltton-Young Committee submitted a report regarding the RBI Act, which was passed in 1934 on the recommendation of the Hiltton-Young Commission. The RBI was set up on April 1, 1935.

RBI was established with an initial share worth Rs 5 lakh. Rs. 100 shares as a dividend.

Post-Independence Period (1947–1991)

At the time, when India gained 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 of 1949, whereas the Reserve Bank of India was nationalised in 1949. the formation of the State Bank of India in 1955 and the other 14 banks were nationalized between 1969 to 1991. These were the banks whose national deposits were more than 50 crores, 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 nationalized;, these banks are included.

1. Andhra Bank
2. Corporation Bank
3. New Bank of India
4. Oriental Bank of Commerce
5. Punjab & Sindh Bank
6. Vijaya Bank

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

1. State Bank of Patiala
2. State Bank of Hyderabad
3. State Bank of Bikaner & Jaipur
4. State Bank of Mysore
5. State Bank of Travancore
6. State Bank of Saurashtra
7. State Bank of Indore

All these banks were later merged with the State Bank of India in 2017, except for the State Bank of Saurashtra, which was merged in 2008 and the 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 Nationalization:

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

• This led to an increase in funds, which thereby increasing the economic condition of the country
• Increased Efficiency
• Helped in building the rural and agricultural sectors of the country.
• It opened up a major employment opportunity for the people.
• The government used the profits 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.

Liberalization Period (1991–Till Date):

The Banks were established in the country, and 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 nationalized 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 them licenses to establish themselves in the country. these banks included.

1. Global Trust Bank
2. ICICI Bank
3. HDFC Bank
4. Axis Bank
5. Bank of Punjab
6. IndusInd Bank
7. Centurion Bank
8. IDBI Bank
9. Times Bank
10. Development Credit Bank

The other measures taken include:

• Setting up of branches of the various foreign banks in India.
• No more nationalisation of Banks could be done.
• The committee announced that the RBI and the 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 financial Banks were allowed to set their branches across India.
• A major part of Indian banking moved online with Internet Banking and alls available for fund transfer.

The history of banking in India shows that, with time and the needs of people, major developments have been made in the banking sector of prospering it.

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