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History Of Banking In India

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History Of Banking In India


Banking history of India is divided into Two major categories –

  • Pre-Independence Banking History
  • Post-Independence Banking History

The Indian banking system at the time of independence was fairly well developed. While the Reserve Bank of India was established in 1935, the nationalization of commercial bank took place much later in 1955. The Imperial Bank was rechristened as the State bank of India (SBI). A substantial amount of shares were then held by the RBI itself. By 1959, several erstwhile banks held by princely states were recognized as branches of SBI, as a part of their reorganization. Thus this period was also the start of public ownership of commercial banks.

 

Pre-Independence Banking :-

  • The origin of modern Banking in India dates back to the 18th century.
  • Bank of Hindusthan was established in 1770 and it was the first bank at Calcutta under European management.
  • Banking Concept in India was brought by Europeans.
  • In 1786 General Bank of India was set up.
  • On June 2, 1806 the Bank of Calcutta established in Calcutta. It was the first Presidency Bank during the British Raj.
  • Bank of Calcutta was established mainly to fund General Wellesley’s wars against Tipu Sultan and the Marathas.
  • On January 2, 1809 the Bank of Calcutta renamed as the Bank of Bengal.
  • In 1839, there was a fruitless effort by Indian merchants to establish a Bank called Union Bank but it failed within a decade.
  • On 15th April, 1840 the second presidency Bank was established in Bombay – Bank of Bombay.
  • On 1 July 1843 the Bank of Madras was established in Madras, now Chennai. It was the third Presidency Bank during the British Raj.
  • Allahabad Bank which was established in 1865 and working even today.
  • The oldest Public Sector Bank in India having branches all over India and serving the customers for the last 145 years is Allahabad Bank. Allahabad bank is also known as one of India’s Oldest Joint Stock Bank.
  • These Presidency banks worked as quasi central banks in India for many years under British Rule.
  • The Comptoire d’Escompte de Paris opened a branch in Calcutta in 1860.
  • HSBC established itself in Bengal in 1869
  • Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center.
  • The Oldest Joint Stock bank of India was Bank of Upper India established in 1863 but this bank was become defunct in 1913.
  • In 1881,  Oudh Commercial Bank was established at Faizabad it was the first Bank of India with Limited Liability to be managed by Indian Board. After Independence, In 1958 this bank failed.
  • In 1895 Punjab National Bank was established in Lahore in Punjab province of Undivided India. It was the first bank purely managed by Indian. PNB has not only survive but also become the second largest public sector bank in India.
  • The first Indian commercial bank which was wholly owned and managed by Indianswas Central Bank of India which was established in 1911.
  • Central bank of India was also called India’s First Truly Swadeshi bank.
  • The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community.  The period between 1906 and 1911 thousands of Banks were established in India. Many of those banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.
  • At least 94 banks in India failed between 1913 and 1918 due to economic crisis during World War I.
  • In 27th January, 1921 Bank of Calcutta, Bank of Madras and Bank of Bombay were amalgamated  to form Imperial Bank of India.
  • In 1926 Hilton-Young Commission submitted it’s report.
  • In 1934 Reserve Bank of India act was passed.
  • On the recommendation of Hilton-Young Commission, On 1st April 1935 Reserve Bank of India was established.
  • RBI was established with initial share capital worth Rs. 5 crore with 5 Lakh Rs. 100 share dividend.

 

Post-Independence Banking History:

Immediately after the Independence, the partition of India in 1947 adversely impacted the economies of Punjab and West Bengal by paralyzing banking activities for months.With end of British rule in India marked the end of a regime of the Laissez-faire for the Indian banking sector.

The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. To streamline the functioning and activities of commercial banks, the government of India has came up with the Banking Companies act, 1949. The Reserve Bank of India, India’s central banking authority, was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948.  The Reserve Bank of India was vested with major powers for the supervision of banking inn India as he central banking authority.

The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.

During those days, the general public had lesser confidence in Banking. As an aftermath, the deposit mobilization process was very slow. Moreover, the savings bank facility provided by postal department was considered comparatively safer than banks, and funds were largely given to traders.

 

Banking In British Era

The origin of western type commercial Banking in India dates back to the 18th century. Bank of Hinduthan is the first bank in India which started at 1770. This bank is liquidated in 1829-32.

After this many banks were started and many banks failed. Some banks started at that time are given below.

Bank name Opened Failed Notable points
Bank of Upper India 1863 1913 Some of its assets and liabilities transferred to Alliance Bank of Simla
Oudh  Commercial Bank 1881 ( in Faizabad) 1958
Punjab National Bank 1894 ( In Lahore) Founder of this bank is Lala Lajpat Rai
Bank of Calcutta 1806 These three banks were merged and form Imperial bank of India 

 

Bank of Bombay 1840
Bank of Madras 1843
Bank of India 1906
Corporation bank 1906
Indian Bank 1907
Bank of Baroda 1908
Canara bank Canara Bank Hindu Permanent Fund (1906)Canara Bank Ltd (1910)
Central Bank of India 1911
Allahabad bank 1865 Oldest Joint Stock bank in India

 

PRESIDENCY BANKS

These banks were funded by the presidency government at that time.

The 3 presidency banks were
  • Bank of Bengal- Established in 1806
  • Bank of Bombay – Established in 1840
  • Bank of Madras – Established in 1843

These three presidency banks were re-organized and amalgamated to form a single entity named “Imperial Bank Of India” on 27 th January ,1927. It was later transformed into “State Bank Of India” in 1955.

SOME OF THE OLD BANKS:

  • Allahabad Bank was established in 1865 at Allahabad(Uttar Pradesh). It is the oldest joint stock bank of our country functioning till today.
  • Oudh Commercial Bank was established in 1881 at Faizabad(Uttar Pradesh).It is the First limited liability Bank in India and also first joint stock bank by Indians.However it failed in 1958.
  • Punjab National Bank was established in 1895 at Lahore(pakistan) and it was also the first bank to be managed solely by Indians.

IMPACT OF “SWADESHI” MOVEMENT

Due to the “Swadeshi” movement many banks were established between 1906 to 1911. Many local
bussinessmen and strong political figures of India funded the banks for Indian community. Some of the banks that were established are as follows:

Name of the Bank Establishment Year
Canara Bank 1906
Bank Of India 1906
Corporation Bank 1906
Indian Bank 1907
Bank Of Baroda 1908

 

“The Reserve Bank Of India”

  • RBI was established on 1st April ,1935 in accordance with the provisions of the RBI act,1934.
  • It was established under the recommendations of the“Hilton Young Commission”also known as “Royal Commission On Indian Currency And Finance”.
  • Initially it was setup in Calcutta and permanently moved to Mumbai in 1937.
  • Initially the RBI was started with private share holder’s fully paid up capital of Rs.5 crores.
  • It also acted as central banking institute for Mynmar till 1948 and till 1947 for Pakistan.
  • The RBI was nationalized on 1st January, 1949 in accordance with the RBI(Transfer to Public Ownership)act,1948.
  • It empowered RBI to act as central banking institution to control monetary policy of Indian Rupee and to control,regulate,monitor,inspect banks in the country as mentioned in the 2nd schedule of RBI act1934.

SUBSIDIARIES OF RBI

  • Deposit Insurance and Credit Guarantee Coporation(DICGC)was set up in 1978.
  • National Agriculture and Rural Development Bank(NABARD) was set up in 1982.
  • National Housing Bank was set up on 1988.
  • Bharatiya Reserve Bank Note Mudran Private Limited(BRBNMPL) was set up in 1995.

STATE BANK OF INDIA

  • The State Bank Of India was formerly known as “Imperial Bank Of India” during the British rule.
  • It was established on 1st July,1955 under the recommendations of “Gorwala committee”.
  • It was nationalized on 2nd June,1956 with majority of its share taken by the Government of India.
  • The SBI acts as an agent where the Reserve Bank Of India has no branch offices.
  • It has 5 associate banks,State Bank of Bikaner & Jaipur, Hyderabad, Mysore, Patiala and Travancore.


Post Independence

  • The Reserve Bank of India, India’s central banking authority, was established in April 1935, but was nationalised on 1 January 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948.
  • In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) “to regulate, control, and inspect the banks in India”.
  • The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.

 

Nationalization of Banks

Despite the provisions, control and regulations of the Reserve Bank of India, banks in India except the State Bank of India (SBI), continued to be owned and operated by private persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry.

Indira Gandhi, the then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled “Stray thoughts on Bank Nationalization”. The meeting received the paper with enthusiasm.

Thereafter, her move was swift and sudden. The Government of India issued an ordinance (‘Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969’) and nationalised the 14 largest commercial banks with effect from the midnight of 19 July 1969. These banks contained 85 percent of bank deposits in the country.

Jayaprakash Narayan, a national leader of India, described the step as a “masterstroke of political sagacity.” Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969.

A second dose of nationalisation of 6 more commercial banks followed in 1980. The stated reason for the nationalisation was to give the government more control of credit delivery. With the second dose of nationalisation, the Government of India controlled around 91% of the banking business of India.

Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalised banks and resulted in the reduction of the number of nationalised banks from 20 to 19.

Liberalization After 1990’S

In the early 1990s, the then government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, UTI Bank (since renamed Axis Bank), ICICI Bank and HDFC Bank.

This move, along with the rapid growth in the economy of India, revitalised the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks.

 

History of State bank of India

The largest bank, and the oldest still in existence, is the State Bank of India. It originated as the Bank of Calcutta in June 1806. In 1809, it was renamed as the Bank of Bengal. This was one of the three banks funded by a presidency government, the other two were the Bank of Bombay and the Bank of Madras. The three banks were merged in 1921 to form the Imperial Bank of India, which upon India’s independence, became the State Bank of India in 1955.

After this, SBI has acquired some local banks with its control. These are called as subsidiaries of SBI. They are

  • State Bank of Bikaner and Jaipur (SBBJ)
  • State Bank of Hyderabad (SBH)
  • State Bank of Mysore (SBM)
  • State Bank of Patiala (SBP)
  • State Bank of Travancore (SBT)

 

Current banking In India

The Indian banking sector is broadly classified into scheduled banks and non-scheduled banks. All banks which are included in the Second Schedule to the Reserve Bank of India Act, 1934 are Scheduled Banks. These banks comprise Scheduled Commercial Banks and Scheduled Co-operative Banks.

Scheduled Co-operative Banks consist of Scheduled State Co-operative Banks and Scheduled Urban Cooperative Banks. Scheduled Commercial Banks in India are categorized into five different groups according to their ownership and/or nature of operation:

  • State Bank of India and its Associates
  • Nationalised Banks
  • Private Sector Banks
  • Foreign Banks
  • Regional Rural Banks.

In a major process of nationalization, 7 subsidiaries of the State Bank of India were nationalized by the Indira Gandhi regime. In 1969, 14 major private commercial banks were nationalized. These 14 banks Nationalized in 1969 are as follows:

  • Central Bank of India
  • Bank of Maharastra
  • Dena Bank
  • Punjab National Bank
  • Syndicate Bank
  • Canara Bank
  • Indian Bank
  • Indian Overseas Bank
  • Bank of Baroda
  • Union Bank
  • Allahabad Bank
  • Union Bank of India
  • UCO Bank
  • Bank of India.

 

Some GK Questions on Banking

  1. First bank established in India : Bank of Hindustan in 1770

  2. Second bank : General Bank of India, 1786

  3. Oldest bank in India originated in the Bank of Calcutta in June 1806 which was still in existence  : State Bank of India

  4. First Indian bank got ISO : Canara Bank

  5. First India bank started solely with Indian capital investment is : PNB (Punjab National Bank)

  6. Founder of Punjab National Bank is : Lala Lajpat Rai

  7. Reserve bank of India (RBI) was instituted in : 1935

  8. First governor of RBI : Mr.Osborne Smith

  9. First Indian Governor of RBI : Mr. C D Deshmukh

  10. First bank to introduce savings account in India : Presidency Bank in 1833

  11. First bank to introduce cheque system in India : Bengal Bank in 1833

  12. First bank to introduce internet banking : ICICI bank

  13. First bank to introduce mutual fund : State Bank of India

  14. First bank to introduce credit card in India : Central Bank of India

  15. Which cards are known as plastic money  : Credit Cards.

  16. Open market operations are carried out by  : RBI

  17. Capital market regulator is  : SEBI

  18. Largest Commercial bank in India  : State Bank of India

  19. The International Bank for Reconstruction and Development (IBRD) is known as : World Bank

  20. India’s First Financial Archive has been set up at  : Kolkata

  21. CRR, SLR, Repo Rate, Reverse Repo rate are decide by : RBI

  22. Savings banks interest rates, fixed deposit interest rates, Loan Rates etc. are decided by : Individual banks

  23. The bank which has launched Mobile Bank Accounts in association with Vodafone’s m paisa  : HDFC Bank

  24. Minimum money transfer limit through RTGS : 2 Lakhs

  25. Maximum money transfer limit through RTGS : No Limit

  26. Minimum & Maximum money transfer limit through NEFT : No Limit

  27. NABARD was established in  : July, 1982

  28. Largest Public sector bank in India  : SBI

  29. Largest Private sector bank in India  : ICICI Bank

  30. Largest Foreign bank in India  : Standard Chartered Bank

  31. First Indian bank to open branch outside India i.e. London in 1946 : Bank of India

  32. First RRB named Prathama Grameen Bank was started by : Syndicate Bank

  33. First Bank to introduce ATM in India : HSBC in1987, Mumbai

  34. Bank has the maximum number of overseas branches: Bank of Baroda

  35. ___holds the second position with maximum number of overseas branches: SBI

  36. Premium credit cards exclusively for women launched recently by  : HDFC bank

  37. Private Sector Bank that recently launched a product of Personal loan called “SWIFT”  : HDFC

  38. The bank which approved loan of $500mn to help India improve Rail services  : Asian Development Bank

  39. First bank established in India : Bank of Hindustan in 1770

  40. Second bank : General Bank of India, 1786

  41. Oldest bank in India originated in the Bank of Calcutta in June 1806 which was still in existence  : State Bank of India

  42. First Indian bank got ISO : Canara Bank

  43. First India bank started solely with Indian capital investment is : PNB (Punjab National Bank)

  44. Founder of Punjab National Bank is : Lala Lajpat Rai

  45. Reserve bank of India (RBI) was instituted in : 1935

  46. First governor of RBI : Mr.Osborne Smith

  47. First Indian Governor of RBI : Mr. C D Deshmukh

  48. First bank to introduce savings account in India : Presidency Bank in 1833

  49. First bank to introduce cheque system in India : Bengal Bank in 1833

  50. First bank to introduce internet banking : ICICI bank

  51. First bank to introduce mutual fund : State Bank of India

  52. First bank to introduce credit card in India : Central Bank of India

  53. Which cards are known as plastic money  : Credit Cards.

  54. Open market operations are carried out by  : RBI

  55. Capital market regulator is  : SEBI

  56. Largest Commercial bank in India  : State Bank of India

  57. The International Bank for Reconstruction and Development (IBRD) is known as : World Bank

  58. India’s First Financial Archive has been set up at  : Kolkata

  59. CRR, SLR, Repo Rate, Reverse Repo rate are decide by : RBI

  60. Savings banks interest rates, fixed deposit interest rates, Loan Rates etc. are decided by : Individual banks

  61. The bank which has launched Mobile Bank Accounts in association with Vodafone’s m paisa  : HDFC Bank

  62. Minimum money transfer limit through RTGS : 2 Lakhs

  63. Maximum money transfer limit through RTGS : No Limit

  64. Minimum & Maximum money transfer limit through NEFT : No Limit

  65. NABARD was established in  : July, 1982

  66. Largest Public sector bank in India  : SBI

  67. Largest Private sector bank in India  : ICICI Bank

  68. Largest Foreign bank in India  : Standard Chartered Bank

  69. First Indian bank to open branch outside India i.e. London in 1946 : Bank of India

  70. First RRB named Prathama Grameen Bank was started by : Syndicate Bank

  71. First Bank to introduce ATM in India : HSBC in1987, Mumbai

  72. Bank has the maximum number of overseas branches: Bank of Baroda

  73. ___holds the second position with maximum number of overseas branches: SBI

  74. Premium credit cards exclusively for women launched recently by  : HDFC bank

 

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