Banking Awareness Question Day 15

Banking Awareness Question Day 15: The Evolution of Banking in India

The banking system is considered the backbone of a nation’s economy. Banking procedures were carried by informal methods in the ancient World. However, formal banking has been developed as the “LIFE BLOOD” of trade and commerce from the 20th century. In India, banking has developed from the primitive to the modern stage of banking in a fashion that has no parallel in world history.

Today, the Indian banking system is divided into commercial banks (Both Public, Private Banks, schedules and non-scheduled), Regional Rural Banks, Cooperative Banks etc. In this article, we will dig deeper to make you understand different phases of the Indian Banking system along with other interesting facts.   

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HISTORY OF INDIAN BANKING

Introduction:
Banking in India has a very long history starting from the late 18th century. In this article, we will brief you about the History of Banking in India.

Important Years in the History of Banking in India:-

Pre Independence Phase of Indian Banking

  • 1770:- The Bank of Hindustan was the First bank to be established in 1770 in Calcutta.
  • 1786:- In 1786 The General Bank of India was established. It was the longest serving bank of the Pre-Independence era. The General Bank of India closed in 1913.
  • 1806:- Britishers open their first bank i.e. The Presidency Bank of Calcutta which was renamed The Presidency Bank of Bengal in 1809.
  • 1840:- Presidency Bank of Bombay was established.
  • 1843:- Presidency Bank of Madras was established.
  • Presidency Banks were managed and owned by Britishers.
  • 1863:- In 1863 ownership was divided between Britishers and Indian Businessmen. These banks were also known as Joint Stock Bank. This Joint Stock Bank was named as Bank of Upper India.
  • 1865:- India’s Oldest Joint Stock Bank (with multiple shareholders) is Allahabad Bank which is still working established in 1865. It is also known as the India’s Oldest Public Sector Bank.
  • Up till Allahabad Bank no bank provided Savings Account.
  • 1881:- In 1881 Oudh Commercial Bank was opened and it was the first bank of India with Limited Liability to be managed by Indian Board. It is also known as The First Commercial Bank of India. It was established in Faizabad.
  • Before 1895 there was no such bank that had Indian employees in the majority or completely owned by Indians.
  • 1894:- The First Bank purely managed by Indians was Punjab National Bank established in Lahore in 1894.
  • 1911:- In 1911 Central Bank of India was opened which was completely owned and managed by Indians. It is also known as India’s First Truly Swadeshi Bank.
  • 1913-1918 is known as “The Dark Phase of Indian Banking”.
  • 1921:- In 1921, Presidency Banks were merged to form Imperial Bank of India and it was a private entity.
  • 1926:- In 1926, Hilton Young Commission was formed to reform the Indian Banking System which was led by Hilton & Young.
  • 1935:- On 1st April 1935, RBI (Reserve Bank of India) was setup on the recommendation of Hilton Young Commission. It was established via the RBI Act 1934, so it is also known as a statutory body.
  • 1946:- Bank of India was the first Indian Bank to open a branch outside India in London in 1946.

Post-Independence Phase of Indian Banking:-

  • Initially RBI was the Central bank of three countries:-
    1. Myanmar (1937- 1947)
    2. Pakistan ( till 1948)
    3. India (till now)
  • 1949:- On 1st January 1949, the Reserve Bank of India was nationalized.
  • 1955:- In 1955, the Imperial Bank of India was nationalized and renamed as State Bank of India, on the recommendation of “A.D. Gorewala Committee”.
  • 1959:- 8 banks were attached with SBI in 1959 known as the Associate Bank of SBI.
    They were:-

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

  • 1969:- On 19 th July 1969, First Phase of Nationalisation took place in which 14 banks with minimum capital of 50 Crore were nationalized.
  • The following banks were nationalized:-

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

  • 1975:- On the recommendation of Narasimham Committee, Regional Rural banks were formed on October 02, 1975.
  • 1980 :- On 15th April 1980 Second Phase of Nationalisation took place in which six more commercial banks with minimum capital of 200 Crore were nationalized.

The following banks were nationalized:-
1. Andhra Bank
2. Corporation bank
3. New Bank of India
4. Oriental bank of Commerce
5. Punjab and Sindh Bank
6. Vijaya Bank

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Third Phase of Indian Banking 1991 and beyond

  • 1991:- In 1991, Narasimham Committee gave its recommendation i.e. allow the entry of private sector entities into the banking system. Following this RBI gave license to 10 Private entities out of which some survived the market demands: – ICICI bank , HDFC Bank, Axis Bank, Indusland Bank , DCB Bank
  • 1993:- New Bank of India was merged with Punjab National Bank on 4th
    September in 1993.
  • 1998:- In 1998 the Narasimham Committee again recommended the entry of more private players.
  • As a result RBI gave license to :-
    Kotak Mahindra Bank in 2001.
    Yes Bank in 2004.
  • 2013:- To enhance Financial Inclusion RBI Proposed to setup 2 new kinds of Banks i.e. Payment Banks and Small Banks.
  • 2015:- In 2015, IDFC and Bandhan Bank were established.