Historical Background of Banking System
The
banking system is considered as the backbone of a nation’s economy. Modern
banking in India originated in the last decade of the 18th century.
We have come up with the history of banking, before and after independence.
History
of Banking in India in Brief
Phases of Indian Banking System
The
advancement in the Indian banking system is classified into 3 distinct phases:
1.
The Pre-Independence Phase i.e. before 1947
2.
Second Phase from 1947 to 1991
3.
Third Phase 1991 and beyond
The Pre-Independence Phase of Banking i.e. before 1947
The first
bank of India was the “Bank of Hindustan”, established in 1770 and located in
the then Indian capital, Calcutta. However, this bank failed to work and ceased
operations 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 in India, The East India Company had established three banks:
Bank of Bengal, Bank of Bombay and Bank of Madras and called them the
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.
Post-Independence Period (1947-1991)
During
the post-independence period, Indian banks saw a lot of changes.
Many
banks in India were handled by private individuals, creating a problem for the
government to handle and regulate the banks.
The
government nationalised many banks under the Bank Regulation Act 1949.
The
Reserve Bank of India was nationalised in 1949.
The
Imperial Bank was nationalised in 1955.
There
were a total of 20 banks with a lot of wealth that were nationalised in this
phase.
Seven
subsidiaries of the SBI banks were also nationalised in 1959. These banks were
merged with the State Bank of India. 2017. The State Bank of Saurashtra and
Indore merged in 2008 and 2010.
The
government established the Regional Rural Banks in 1975 for rural sector people
as they were primarily dependent on money lenders to get loans and other
banking services. They were exploited
Evolution of Banking in India (1947-1991)
Allahabad
Bank
Bank of
India
Bank of
Baroda
Bank of
Maharashtra
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
Andhra
Bank
Corporation
Bank
New Bank
of India
Oriental
Bank of Commerce
Punjab
& Sind Bank
Vijaya
Bank
State
Bank of Patiala
State
Bank of Hyderabad
State
Bank of Bikaner & Jaipur
State
Bank of Mysore
State
Bank of Travancore
State
Bank of Saurashtra
State
Bank of Indore
In 1975,
the Government of India recognised that several groups were financially
excluded. Between 1982 and 1990, it created banking institutions with
specialised functions in line with the evolution of financial services in
India.
Meanwhile,
on the recommendation of the Narasimham Committee, Regional Rural Banks (RRBs)
were formed on Oct 2, 1975. The objective behind the formation of RRBs was to
serve the large unserved population of rural areas and promoting financial
inclusion.
With a
view to meet the specific requirement from the different sector (i.e.
agriculture, housing, foreign trade, industry) some apex level banking
institutions were also set up likeLa) NABARD (est. 1982)
NABARD
(1982) – to support agricultural activities
EXIM
(1982) – to promote export and import
National
Housing Board – to finance housing projects
SIDBI
– to fund small-scale industries
Liberalisation Period (1991-Till Date)
Once 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 hugely
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 developm’nt was the introduction of Private sector banks in India. RBI
gave license to 10 Private sector banks to establish 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
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 RBI and Government would treat both public and private
sector banks equally
Any
Foreign Bank could start joint ventures with Indian Banks
Payments
banks were introduced with the development in the field of banking and
technology
Small
Finance Banks were allowed to set their branches across India
A major
part of Indian banking moved online with internet banking and apps available
for fund transfer
Thus, the
history of banking in India shows that with time and the needs of people, major
developments have been brought about in the banking sector with an aim to
prosper it.
