Indian Banking history

Indian Banking History :

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 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 :

Banking in its crude form is as 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 law giver menu has dealth 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 companys trade relation with our country. The growing trade interest of the English merchants and non existence of any organised banks in India, prompted many English agency houses which were essentially trading company to add banking business to their activities. For instance M/S Alexander and company and M/S Fergussan and company, both trading firms, combined banking with other kinds of business and both were the predecessor of the early joint stock bank In India.

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

2. Presidency Bank :

The banking business of agency houses which 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 :

  1. Banks of Bengal (1809)
  2. The bank of Bombay (1840)
  3. The Bank of Madras (1843) we’re established under the Charter Of the East India company. These banks acted as banker to the East India company at Calcutta, Bombay and Madras and performed Central Banking functions for their respective areas.
  1. Bank of Bengal : The bank of Bengal was setup 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 percent per anum. In 1839 ,the bank was allowed to open branches and to deal in inland exchanges. It took the responsibility of public debt management from 1865.
  2. 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 in inland exchanges, public debt and also to open branches.
  3. 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 other two presidency bank.

3. The Swadeshi Movement :

Swadeshi movement was promoted in India for start many new institutions. The number of joint stock banks increased during 1906-1913. The peoples 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 setup 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 business. The major central banking functions discharged by the bank before the establishment of the Reserve BANK OF INDIA were as follows –

  1. It acted as the main ‘banker’ to the Government and as the custodian of public funds and government cash balances.
  2. It managed the public debt of the government and provided the machinery for the issue of government securities.
  3. It acted as a bankers bank.
  4. 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 Seperate 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 setup 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 banking. The pace of growth of banks gained momentum largely due to the efforts of the government.

  1. Nationalisation of the Reserve Bank of India : The Reserve Bank was setup as a private shareholders bank in 1935. After independence, it was decided to nationalise the Reserve Bank in order to have better integration of the policies of the bank and the macro economic policies of the government. Accordingly on January 1, 1949 ,the Reserve Bank was nationalised under the Reserve Bank act 1948.
  2. Banking Regulation act 1949: At the time of independence there was no special legislation which could govern the functioning of banks in India. In order to promote sound and balanced growth of banking business in India, the government enacted the banking Regulation act in 1949.
  3. Nationalisation of the imperial bank of India: After independence there was strong demand for the nationalisation of the imperial bank. The management of the bank was in the hands of few people who discriminated in favour of the European companies. The rural credit survey committee recommended the nationalisation of the imperial bank of India. In pursuance of this recommendations the government of India nationalised the imperial bank of India and renamed as 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 bank’s 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 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 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 bank’s.
  7. Bank Nationalisation : Social control on banks could not fulfill the objectives of the government and was found to be unsatisfactory and inadequate. Ultimately the government took the decision to nationalise the major commercial banks. Initially in July 1969, the government nationalised 14 major commercial banks and again in 1980 , the government took over 6 more commercial banks. With the nationalisation 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 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 works jointly under the lead banks. In the pre- nationalisation days the banking facilities in India were not evenly distributed in different parts of the country. There was a large unbanked area. After nationalising the bank’s in 1969 , the government strived to expand the geographical coverageof 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 were setup in 1975 under the sponsorship of the commercial bank’s. The Regional Rural Banks are governed by the Regional Rural Banks act 1976. Apart from these developments , a large number of specialised financial institutions were set up in India to meet specific credit and investment needs of the country.

Frequently Questions And Answers :

1. How many bank’s are nationalised in India?

Ans: There are 19 bank’s nationalised in India.

2. When did banking start in India?

Ans: In India banking system started in the year 1770 and the name of 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 banking system in India?

Ans: Savings account system started in India with 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 invested bank ?

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

Related :

WHAT IS BANK AND WHAT ARE THE TYPES OF BANK ?

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