History of Banking In India
From the ancient times in India, an indigenous banking system has prevailed. The businessmen called Shroffs, Seths, Sahukars, Mahajans, Chettis etc. had been carrying on the business of banking since ancient times. These indigenous bankers included very small money lenders to shroffs with huge businesses, who carried on the large and specialized business even greater than the business of banks.
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.
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 and Still functioning
• 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.
Some GK Questions on Banking
First bank established in India Bank of Hindustan in 1770 Second bank General Bank of India, 1786 Oldest bank in India originated in the Bank of Calcutta in June 1806 which was still in existence State Bank of India First Indian bank got ISO Canara Bank First India bank started solely with Indian capital investment is PNB (Punjab National Bank) Founder of Punjab National Bank is Lala Lajpat Rai Reserve bank of India (RBI) was instituted in 1935 First governor of RBI Mr.Osborne Smith First Indian Governor of RBI Mr. C D Deshmukh First bank to introduce savings account in India Presidency Bank in 1833 First bank to introduce cheque system in India Bengal Bank in 1833 First bank to introduce internet banking ICICI bank First bank to introduce mutual fund State Bank of India First bank to introduce credit card in India Central Bank of India Which cards are known as plastic money Credit Cards. Open market operations are carried out by RBI Capital market regulator is SEBI Largest Commercial bank in India State Bank of India The International Bank for Reconstruction and Development (IBRD) is known as World Bank India’s First Financial Archive has been set up at Kolkata CRR, SLR, Repo Rate, Reverse Repo rate are decide by RBI Savings banks interest rates, fixed deposit interest rates, Loan Rates etc. are decided by Individual banks The bank which has launched Mobile Bank Accounts in association with Vodafone’s m paisa HDFC Bank Minimum money transfer limit through RTGS 2 Lakhs Maximum money transfer limit through RTGS No Limit Minimum & Maximum money transfer limit through NEFT No Limit NABARD was established in July, 1982 Largest Public sector bank in India SBI Largest Private sector bank in India ICICI Bank Largest Foreign bank in India Standard Chartered Bank First Indian bank to open branch outside India i.e. London in 1946 Bank of India First RRB named Prathama Grameen Bank was started by Syndicate Bank First Bank to introduce ATM in India HSBC in1987, Mumbai Bank has the maximum number of overseas branches Bank of Baroda ___holds the second position with maximum number of overseas branches SBI Premium credit cards exclusively for women launched recently by HDFC bank Private Sector Bank that recently launched a product of Personal loan called “SWIFT” HDFC The bank which approved loan of $500mn to help India improve Rail services Asian Development Bank FDI limit for new banks 49% FDI limit for private banks 74%