Historical Background of Banking system

 

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 18^th 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.