Banking History

Pre-Independence Banking History in India:

Banking history of India is divided into Two major categories -

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

Pre-Independence Banking:-

• The origin of modern Banking in India dates back to the 18th century.
• Bank of Hindustan was established in 1779 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 Indians was 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.

Banking History in India – Post-Independence Banking History

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.

Nationalised Banks in India – Bank Nationalisation in India

In India, the Banking Sector has been dominated by Government or Public Sector Banks for last 64 years. In 1954 the All India Rural Credit Survey Committee submitted its report recommending creation of a strong, integrated, state-sponsored, state-partnered commercial banking institution with an effective machinery of branches spread all over the country. The recommendation of this committee led to establishment of first Public Sector Bank in the name of State bank of India  on July 01, 1955 by acquiring the substantial part of share capital by Reserve Bank of India, of then Imperial Bank of India. Similarly during 1956-59, as a result of reorganization of princely states, the State Bank of India associate Bank came into fold of Public sector banking.

On July 19, 1969, the Govt. promulgated Banking Companies (Acquisition and Transfer of Undertakings) ordinance 1969 to acquire 14 bigger commercial banks with with deposits over 50 crores. The main objective behind this bank nationalisation was to spread banking infrastructure in rural india and make cheap finance available to Indian farmers.

The second phase of bank nationalisation took place in 1980 during the prime ministerial tenure of Indira Gandhi, in which 7 more banks were nationalised with deposits over 200 crores.

List of Nationalised Banks in India:

1. Allahabad Bank
2. Andhra Bank
3. Bank of Baroda
4. Bank of India
5. Bank of Maharashtra
6. Canara Bank
7. Central Bank of India
8. Corporation Bank
9. Dena Bank
10. Indian Bank
11. Indian Overseas Bank
12. Oriental Bank of Commerce
13. Punjab and Sind Bank
14. Punjab National Bank
15. Syndicate Bank
16. UCO Bank
17. Union Bank of India
18. United Bank of India
19. Vijaya Bank

Bank Liberalisation in India – Liberalisation in Banks

Liberalisation in banking sector in India noticed in early 1990s’ when India adopted a new economic policy for the development of the nation. Narasimha Rao government embarked on a policy of liberalization, licensing a small number of private banks.For the first time in India new private banks got license for providing  banking service. These banks came to be known as the New Generation tech-savvy banks.
The first bank in India set up after the adaptation of new liberalization policy in banking sector was Global Trust Bank. It was later amalgamated with Oriental Bank of Commerce. The list of banks set up after new liberalization policy includes Global Trust Bank, UTI Bank (Now known as Axis Bank), ICICI Bank and HDFC Bank.
This move towards the Liberalisation along with the rapid economic growth in India, re-energize the banking sector in India. Indian banking sector has noticed rapid growth with strong contribution from all sector of banks – government banks, private banks and foreign banks.
The next stage for the Indian banking sector has been set up with the proposed relaxation in the norms for Foreign Direct Investment (FDI).  All Foreign Investors in banks can holds up to 74% with some restrictions of the company.