Indian Banking History

The Indian Banking industry has a long history. It has traversed a long path to assure it’s present form. It has taken in its stride many hurdles and impediments, stresses and strains and moved ahead with vigour.

The banking industry started with small money lenders and has now the large joint-stock world-class bank’s in its fold.

The growth of banks in India is discussed below over two eras:-

A. Pre- Independence Period

B. Post Independence Period

A. Pre- Independence Period of Indian Banking History:

Indian Banking history in its crude form old as authentic history. All throughout the period of Indian banking history, indigenous bankers and money lenders are recorded to have existed and carried on the business of banking and money lending on a large scale.

From 1400 to 200 BC during the Vedic period records of deposits and lending are found. Renowned Hindu lawgiver menu has death with the matter of deposits and pledges in a section of work.

1. Agency houses :

The indigenous bankers lost their importance to a certain extent with the advent of the English traders in India. The genesis of banking on modern lines in India can be traced to the beginning of the East India company’s trade relation with our country.

The growing trade interest of the English merchants and nonexistence of any organized banks in India prompted many English agency houses which were essentially trading companies to add banking business to their activities.

For instance, M/S Alexander and company and M/S Fergusson and company, both trading firms, combined banking with other kinds of business and both were the predecessors of the early joint-stock bank in India.

The banking business of agency houses could not continue for long. The majority of these houses failed because of their complete disregard for the rules of the banking business.

2. Presidency Bank :

The banking business of agency houses that survived and continued to carry on trade and Indian banking history together was progressively taken over by the presidency banks.

The three presidency banks are :

A) Banks of Bengal (1809)

B) The bank of Bombay (1840)

C) The Bank of Madras (1843) we’re established under the Charter Of the East India company. These banks acted as bankers to the East India Company at Calcutta, Bombay, and Madras and performed Central Banking functions for their respective areas.

A)Bank of Bengal: The bank of Bengal was set up in 1806 and it obtained it’s Charter in 1809. The establishment of the Bank of Bengal marked the advent of joint-stock banking in India.

The bank of Bengal was set up with a capital of Rs 50 lakes divided into 500 equity shares of Rs 10000 each. The Bengal government contributed 100 shares.

The charter gave the power of note issues to the Bank in 1823 and the fixed the maximum rate of interest of the bank at 12 per cent per anum.

In 1839, the bank was allowed to open branches and to deal with inland exchanges. It took the responsibility of public debt management from 1865.

B) Bank Of Bombay: The bank of Bombay, the second presidency bank was established in 1840 with the share capital of Rs 52.25 lakhs. The bank was given the power to deal with inland exchanges, public debt and also to open branches.

C) Bank of Madras: The Bank of Madras, the third presidency bank was established in 1843 with the share capital of Rs 30 lakes. The bank also acted like the other two presidency banks.

3. The Swadeshi Movement :

Swadeshi movement was promoted in India to start many new institutions. The number of joint-stock banks increased from 1906-1913.

The people’s bank of India limited, The bank of India limited, the central bank of India limited, Indian Bank Limited and the Bank of Baroda limited were set up during that period. The boom continued till it was overtaken by the crises of 1913-1919.

4. Imperial Bank of India :

The three presidency banks were amalgamated into the imperial bank of India which was bought into existence on 27th January 1921, by the imperial bank of India act 1920.

The liability of shareholders of the imperial bank was not unlimited like that of shareholders of other banks registered under the company act. However, the word ” UnLimited” didn’t form a part of the name of the bank.

The imperial bank work for both central and commercial banking businesses. The major central banking functions discharged by the bank before the establishment of the Reserve Bank of India were as follows –

I) It acted as the main ‘banker’ to the Government and as the custodian of public funds and government cash balances.

II) It managed the public debt of the government and provided the machinery for the issue of government securities.

III) It acted as a banker’s bank.

IV) It acted as an exchange bank and promoted foreign trade.

5. Reserve Bank of India:

There was a strong demand for the establishment of a Separate central bank in India during the first part of the 20th Century.

Through the imperial bank undertook some central banking functions, it could not fully satisfy the demand for a Central Bank.

The Hilton Young commission in 1926 recommended the setting up of the reserve bank of India as a full-fledged Central Bank of the country. Accordingly, in 1934 an act was passed and under this act, the Reserve Bank was set up in 1935.

It took over all the Central banking functions from the imperial bank and the Imperial bank was authorized to act as the agent of the reserve bank.

B. Post Independence Period of Indian banking history:

Independent India saw a number of landmark developments in the field of Indian banking history. The pace of growth of banks gained momentum largely due to the efforts of the government.

1) Nationalization of the Reserve Bank of India: The Reserve Bank was set up as a private shareholders bank in 1935. After independence, it was decided to nationalize the Reserve Bank in order to have better integration of the policies of the bank and the macroeconomic policies of the government. Accordingly, on January 1, 1949, the Reserve Bank was nationalized under the Reserve Bank act 1948.

2) Banking Regulation Act 1949: At the time of independence there was no special legislation that could govern the functioning of banks in India. In order to promote the sound and balanced growth of the banking business in India, the government enacted the Indian Banking history Regulation act in 1949.

3) Nationalization of the imperial bank of India: After independence, there was a strong demand for the nationalization of the imperial bank. The management of the bank was in the hands of a few people who discriminated in favour of the European companies.

The rural credit survey committee recommended the nationalization of the imperial bank of India. In pursuance of these recommendations, the government of India nationalized the Imperial Bank of India and renamed the State Bank of India on July 1, 1955.

4) Associate Banks of the State Bank of India: The State Bank of India act was passed by the parliament in 1959 enabling the state Bank to take over eight state-owned banks as its subsidiaries.

However, two of these banks ( state bank of Bikaner and State bank of Jaipur) merged in 1963 and in July 2008 state bank Saurashtra was merged with the State Bank of India and thus there are now six associate Banks. The state banks and it’s associate Banks are together known as the State Bank group.

5) Deposit Insurance Scheme: Deposit insurance scheme was introduced in India with effect from January 1, 1962, to protect the interest of the small depositor and to restore public confidence among the people of the soundness of the banking system.

6) Social Controls: The government introduced a comprehensive scheme of social controls on banks on February 1, 1969, to serve the cause of economic growth and fulfil the social objectives.

The basic aim of social control was to bring about changes in the management and credit policies of the commercial banks.

7) Bank Nationalisation: Social control of banks could not fulfil the objectives of the government and was found to be unsatisfactory and inadequate. Ultimately the government took the decision to nationalize the major commercial banks.

Initially, in July 1969, the government nationalized 14 major commercial banks and again in 1980, the government took over 6 more commercial banks. With the nationalization of these banks, a new era of banking development started in India and has been aptly termed as the start of the Banking Revolution in India.

8) Lead Bank Scheme: The lead Bank scheme was introduced in December 1969 to promote the integrated development of each district of the country. Under this scheme, a commercial bank was assigned the lead role in a district and all other financial institutions work jointly under the lead banks.

In the pre- nationalization days the banking facilities in India were not evenly distributed in different parts of the country. There was a large unbanked area. After nationalizing the bank’s in 1969, the government strived to expand the geographical coverage of the banking system so as to provide banking facilities to unbaked backward areas.

9) Regional Rural Bank: In order to provide efficient banking services in rural areas, Regional Rural Bank was set up in 1975 under the sponsorship of the commercial banks. The Regional Rural Banks are governed by the Regional Rural Banks act 1976.

Apart from these developments, a large number of specialized financial institutions were set up in India to meet the specific credit and investment needs of the country.

Frequently Questions And Answers :

1. How many banks are nationalized in India?

Ans: There are 19 banks nationalized in India.

2. When did banking start in India?

Ans: In Indian banking history started in the year 1770 and the name of the bank was Bank of Hindustan.

3. Which is the number 1 banking in India?

Ans: I think HDFC bank is the no 1 bank in India.

4. Which bank started the Indian banking history in India?

Ans: Savings account system started in India with the Presidency bank.

5. Which is the biggest bank in India?

Ans: State Bank of India is the biggest bank in India.

6. Which is the Safest Bank in India?

Ans: State Bank of India is the Safest Bank in India.

7. Who invented in the bank?

Ans: The first bank was invented by Assyria and Babylonia.

Related:

BANKING SYSTEM IN INDIA

Categories Banking

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