History of
Banking in India – Banking Awareness Notes
Dear Aspirants,
Banking Sector is the
Backbone of Indian Economy. And since the inception of First Bank in India, it
has undergone major changes. For a Banking Aspirant it is essential to know
about the timeline of Events in Banking Sector.
So here we are providing
an article on History of Banking in India.
Money makes the mare go is an old saying which
is relevant even today. So are the banks.
In India, references about
banking and regulations were even found in our scriptures and ancient texts.
Rna or Debt is even mentioned in our Vedic literature. Banking products are
also found quoted in Chanakya’s Arthashastra (300 B.C.).Moving to
Modern day banking system, the concept of banking is laid by the people of Italy
under the name Banco.
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
Phase I:
This phase is
characterized by the presence of a large number of banks (more than 600).
Banking system commenced
in India with the foundation of Bank of Hindustan in Calcutta
(now Kolkata) in 1770 which ceased to operate in 1832. After
that many banks came but some were not successful like –
- General Bank of India (1786-1791)
- Oudh Commercial Bank (1881-1958) – the first
commercial bank of India.
Whereas some are
successful and continue to lead even now like –
- Allahabad Bank (est. 1865)
- Punjab National Bank (est. 1894, with HQ in
Lahore (that time))
- Bank of India (est. 1906)
- Bank of Baroda (est. 1908)
- Central Bank of India (est. 1911)
While some others like Bank
of Bengal (est. 1806), Bank of Bombay (est. 1840), Bank
of Madras (est. 1843) merged into a single entity in 1921which
came to be known as Imperial Bank of India.
Note: Imperial Bank of India was
later renamed in 1955 as the State Bank of India.
In April 1935, Reserve Bank of India was
formed based on the recommendation of Hilton Young Commission (setup in
1926).
In this time period, most
of the bank were small in size and suffered from high rate of failures.
As a result public confidence is low in these banks and deposit mobilization
was also very slow. People continued to rely on unorganized sector
(moneylenders and indigenous bankers).
Phase II:
Broadly the main
characteristic feature of this phase is thenationalization of bank. With
the view of economic planning, nationalization emerged as the effective
measure.
Need for nationalization in
India:
a) The banks mostly catered to the
needs of large industries, big business houses.
b) Sectors such as agriculture,
small scale industries and exports were lagging behind.
c) The poor masses continued to be
exploited by the moneylenders.
Following this, in the
year 1949, 1st January the Reserve Bank of India was
nationalized.
14 commercial banks were nationalized in 19th
July, 1969. Smt. Indira Gandhi was the Prime Minister of India, during
in 1969. These were –
1. Central Bank of India
2. Bank of India
3. Punjab National Bank
4. Bank of Baroda
5. United Commercial Bank
6. Canara Bank
7. Dena Bank
8. United Bank
9. Syndicate Bank
10.Allahabad Bank
11.Indian Bank
12.Union Bank of India
13.Bank of Maharashtra
14.Indian Overseas Bank
6 more commercial
banks were nationalized in April 1980. These were:
1. Andhra Bank
2. Corporation Bank
3. New Bank of India
4. Oriental Bank of Commerce
5. Punjab & Sindh Bank
6. Vijaya Bank.
Note: In 1993, New Bank of India got
merged with Punjab National Bank.
Meanwhile on the
recommendation of M.Narsimhan committee, RRBs (Regional Rural
Banks) were formed on Oct 2, 1975. The objective behind the
formation of RRBs was to serve 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 setup
like
- NABARD (est. 1982)
- EXIM (est. 1982)
- NHB (est. 1988)
- SIDBI (est. 1990)
Impact of Nationalisation:
a) Improved efficiency in the
Banking system – since the public ‘s confidence got boosted.
b) Sectors such as Agriculture,
small and medium industries started getting funds – led to economic growth.
c) Increased penetration of Bank
branches in the rural areas.
Phase III
This period saw a
remarkable growth in the process of development of banks with the
liberalization of economic policies. Even after nationalization and
the subsequent regulations that followed, a large portion of masses are
untouched by the banking services.
Considering this, in
1991, the Narsimhan committee gave its recommendation
i.e. to allow the entry of private sector players into the banking system.
Following this RBI gave license to 10 private entities, of which 6 are
survived, which are- ICICI, HDFC, Axis Bank, IDBI, Indus, DCB.
In 1998, the
Narsimhan committee again recommended entry of more private players.
As a result RBI gave license to
- Kotak Mahindra Bank (2003)
- Yes Bank (2004)
In 2013-14, 3rd round
of bank licensing took place. And in 2014 IDFC bank and Bandhan Bank emerged.
In order to further
financial inclusion, RBI also proposed to set up 2 kind of banks i.e.Payment
Banks and Small Banks.
Some Important Facts:
1. Allahabad Bank, established in 1865 – Allahabad
Bank is the oldest Public Sector Bank in India having branches all
over India and serving the customers for the last 145 years.
2. Imperial Bank of India was later
renamed in 1955 as the State Bank of India.
3. The first Bank of India with
Limited Liability to be managed by Indian Board was Oudh Commercial
Bank. It was established in 1881 at Faizabad.
4. Punjab National Bank is the
first bank purely managed by Indians, which was established in Lahore in 1895.
5. First Truly
Swadeshi bank – Central
Bank of India is called India’s First Truly Swadeshi bank, which
was established in 1911 and wholly owned and managed by Indians.
6. Union Bank of India was
inaugurated by Mahatma Gandhi in 1919.
7. Osborne Smith was the first governor
of the Reserve Bank.
8. CD Desmukh was the
first Indian to be the governor of Reserve Bank.
9. Savings account system in India
was started by Presidency Bank,1833.
10. The first Indian bank to open
overseas branch is Bank of India. It established a branch
in London in 1946.
11. ICICI Bank was the first Indian bank to
provide internet banking facility.
12. Central Bank
of India was
the first public bank to introduce Credit card.
13. ICICI bank is the first bank to
provide mobile ATM.
14. Bank of Baroda has
the maximum number of overseas branches.
