A BRIEF HISTORY OF BANKING IN INDIA

A BRIEF HISTORY OF BANKING IN INDIA
1. 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.
• The origin of western type commercial Banking in India dates back to
the 18th century.
2. The story of banking starts from Bank of Hindusthan established in
1779 and it was first bank at Calcutta under European management.
• In 1786 General Bank of India was set up.
3. Since Calcutta was the most active trading port in India, mainly
due to the trade of the British Empire, it became a banking center.
• Three Presidency banks were set up under charters from the British
East India Company- Bank of Calcutta, Bank of Bombay and the Bank of
Madras. These worked as quasi central banks in India for many years.
• The Bank of Calcutta established in 1806 immediately became Bank of Bengal.
• In 1921 these 3 banks merged with each other and Imperial Bank of
India got birth. It is today'sState Bank of India.
• The name was changed after India's Independence in 1955. So State
bank of India is the oldest Bank of India.
4. In 1839, there was a fruitless effort by Indian merchants to
establish a Bank called Union Bank. It failed within a decade.
5. Next came 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.
6. The Oldest Joint Stock bank of India was Bank of Upper India
established in 1863 and failed in 1913.
7. The first Bank of India with Limited Liability to be managed by
Indian Board was Oudh Commercial Bank. It was established in 1881 at
Faizabad. This bank failed in 1958.
8. The first bank purely managed by Indian was Punjab National Bank,
established in Lahore in 1895. The Punjab national Bank has not only
survived till date but also is one of the largest banks in India.
9. However, 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 dreams come true of Sir Sorabji
Pochkhanawala, founder of the Bank.
• Sir Pherozesha Mehta was the first Chairman of this Bank.
10. Many more Indian banks were established between 1906-1911. This
was the era of the Swadeshi Movement in India. Some of the banks are
Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara
Bank and Central Bank of India.
• Bank of India was the first Indian bank to open a branch outside
India in London in 1946 and the first to open a branch in continental
Europe at Paris in 1974.
• The Bank was founded in September 1906 as a private entity and was
nationalized in July 1969. Since the logo of this Bank is a star, its
head office in Mumbai is located in Star House, Bandra East, Mumbai.
11. There was a district in Today's Karnataka state called South
Canara under the British empire. It was bifurcated in 1859 from Canara
district , thus making Dakshina Kannada and Udupi district. It was the
undivided Dakshina Kannada district. It was renamed as Dakshina
Kannada in 1947. Four banks started operation during the period of
Swadeshi Movement and so this was known as "Cradle of Indian Banking.
• This was the first phase of Indian banking which was a very slow in
development. This era saw many ups and downs in the banking scenario
of the country.
12. The Second Phase starts from 1935 when Reserve bank of India was
established.
• Between the period of 1911-1948, there were more than 1000 banks in
India, almost all small banks. The Reserve Bank of India was
constituted in 1934 as an apex Bank, however without major government
ownership. Government of India came up with the Banking Companies Act
1949. This act was later changed to Banking Regulation (Amendment) Act
1949.
• The Banking Regulation (Amendment) Act of 1965 gave extensive powers
to the Reserve Bank of India. The Reserve Bank of India was made the
Central Banking Authority.
13. The banking sector reforms started immediately after the
independence. These reforms were basically aimed at improving the
confidence level of the public as most banks were not trusted by the
majority of the people. Instead, the deposits with the Postal
department were considered safe.
14. The first major step was Nationalization of the Imperial Bank of
India in 1955 via State Bank of India Act.
• State Bank of India was made to act as the principal agent of RBI
and handle banking transactions of the Union and State Governments.
15. In a major process of nationalization, 7 subsidiaries of the State
Bank of India were nationalized by the Indira Gandhi regime. In 1969,
14 major private commercial banks were nationalized. These 14 banks
Nationalized in 1969 are as follows:
o Central Bank of India
o Bank of Maharastra
o Dena Bank
o Punjab National Bank
o Syndicate Bank
o Canara Bank
o Indian Bank
o Indian Overseas Bank
o Bank of Baroda
o Union Bank
o Allahabad Bank
o Union Bank of India
o UCO Bank
o Bank of India.
16. The above was followed by a second phase of nationalization in
1980, when Government of India acquired the ownership of 6 more banks,
thus bringing the total number of Nationalised Banks to 20. The
private banks at that time were allowed to function side by side with
nationalized banks and the foreign banks were allowed to work under
strict regulation.
17. After the two major phases of nationalization in India, the 80% of
the banking sector came under the public sector / government
ownership.
18. Please note the following sequence of events:
 Creation of Reserve bank of India: 1935
 Nationalization of Reserve Bank of India : 1949 (January )
 Enactment of Banking Regulation Act : 1949 (March)
 Nationalization of State Bank of India : 1955
 Nationalization of SBI Subsidiaries : 1959
 Nationalization of 14 major Banks : 1969
 Creation of Credit Guarantee Corporation: 1971
 Creation of Regional Rural Banks : 1975
 Nationalization of 7 more banks with deposits over Rs. 200 Crore: 1980
19. The result was outstanding. The public deposits in these banks
increased by 800% , as the government ownership gave the public faith
and trust.
20. The third phase of development of banking in India started in the
early 1990s when India started its economic liberalization.