History of Indian Banking

Name : Pratiksha Laxman Kamble

Std : M.Com part 2
Roll No : 267
Div : B
 Introduction
• According to the Banking Companies Act of 1949, B
anking is defined as, accepting for the purpose of le
nding or investment of deposit money from the pub
lic, repayable on demand or otherwise and withdra
wable by cheque draft, order or otherwise.
 Stages of Evaluation
• The history of Banking can be mainly categorized in
to 3 stages -
• 1. Pre-Independence Stage - Before 1947
• 2. II Phase - 1947 to 1991
• 3. III Phase - 1991 & beyond
 Pre - Independence Era
( Before 1947)
• Pre-Independence Stage
• The Pre-Independence stage has seen significant events. This
phase marks the presence of more than 600 banks.
• The Banking system in India started with the foundation of th
e Bank of Hindustan in 1770, but it ceased to operate in 1832.
• This phase also saw the alliance of 3 major banks - Bank of Be
ngal, Bank of Bombay & Bank of Madras. They were amalgam
ated and called Imperial Bank, which was taken over by SBI in
1955
• A few of the banks were established in this period as listed be
low -
 Bank Name Established In

Allahabad Bank 1865

Punjab National Bank 1894

Bank of India 1906

Bank of Baroda 1908

Central Bank of India 1911

 2 Phase : 1947 to 1991
• In this phase, a major event that took place was Na
tionalization of the Bank.
• The Reserve Bank of India (RBI) was nationalized on
1st January 1949.
• Along with Nationalization, Regional Rural Banks we
re formed on 2nd October 1975.
 3 Phase : 1991 & Beyond
• The years after 1991 saw remarkable growth in the
process of developement of banks with the liberaliz
ation of economic policies.
• It was a phase of expansion, consolidation, and incr
ement in many ways.
• RBI gave license to 10 private entities which include
- ICICI, Axis Bank, HDFC, DCB,Indusland Bank.
• Other than these 3 phases, you can also consider th
e Modern Phase.
 Modern Phase
• This is the phase of “New Generation” tech-savvy b
anks. This phase can be called as “The Reforms Pha
se”. Currently, banking in India is generally fairly ma
ture in terms of supply, product range and reach-ev
en though reach in rural India still remains a challen
ge for the private sector and foreign banks.
 Current Banking Scenario
• 1) Scheduled Banks :
• Scheduled Banks in India constitute those banks, which have been included in the Second
Schedule of Reserve Bank of India (RBI) Act, 1934. These banks should fulfill two condition
s:
① Paid-up capital and collected funds should not be less than Rs.5 lakhs
② Any activity of the Bank should not be detrimental or adversely affect the interests of th
e customers.
• It comprises Commercial Banks and Cooperative Banks. Commercial Banks are both sched
uled and Non-scheduled commercial banks regulated Banking Regulations Act 1949. Com
mercial Banks works on a ‘Profit Basis’ and is engaged in the business of accepting deposit
s for the purpose of advances/loans.
• There are four types of Scheduled Commercial Banks:
1. Public Sector Bank
2. Private Sector Bank
3. Foreign Banks
4. Regional Rural
• 2) Non-scheduled bank
• Non- Scheduled Banks in India means "a banking company as defined in clause (c) o
f section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled ban
k".
• Reserve Bank of India is the central bank of the nation and all Banks in India are req
uired to follow the guidelines issued by RBI. Banks in India can also be classified in a differ
ent way:
1. Public Sector Banks: They are those banks where Govt. is the owner or having more th
an 51% stake in the capital. Currently, there are 21 Public Sector Banks in India includin
g 19 Nationalized Banks. State Bank of India and its 5 Associate Banks together called St
ate Bank Group.
2. Private Sector Banks: Private Banks are owned by private individuals/institutions. Thes
eare registered under the Companies Act 1956 as Limited Companies.
3. Regional Rural Banks (RRBs): Previously these were 196 Regional Rural Banks sponsore
d by 27 State Cooperative Banks. As on 31st March 2013 due to mergers, their number
has come down from 196 to 64
4. Foreign Banks: These banks are incorporated outside India and are operating branches
in India also. Some foreign banks are also having their representative offices in India
5. Development Banks: These include Industrial Finance Corporation of India (IFCI) establi
shed in 1948, Export-Import Bank of India (EXIM Bank) established in 1982, National Ba
nk for Agriculture & Rural Development (NABARD) established in 1982, and Small Indus
tries Development Bank of India (SIDBI) established on 2nd April 1990.
 Reserve Bank of India
• The Reserve Bank of India (RBI) is India's central banki
ng institution, which controls the monetary policy of t
he Indian rupee.
• It commenced its operations on 1 April 1935 during th
e British Rule in accordance with the provisions of the
Reserve Bank of India Act, 1934.
• The original share capital was divided into shares of 10
0 each fully paid, which were initially owned entirely b
y private shareholders. Following India's independenc
e on 15 August 1947, the RBI was nationalised on 1 Ja
nuary 1949.
Hilton - Young Commission :
• The Reserve Bank of India was set up on the basis of the rec
ommendations of the Royal Commission on Indian Currency
and Finance also known as the Hilton-Young Commission.
• The Preamble of the RBI describes its basic functions to reg
ulate the issue of bank notes, keep reserves to secure mone
tary stability in India, and generally to operate the currency
and credit system in the best interests of the country.
• The Central Office of the RBI was established in Calcutta (no
w Kolkata) but was moved to Bombay (now Mumbai) in 193
7.
 State Bank of India
• The largest bank, and the oldest still in existence, is the State Bank of In
dia (S.B.I). 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 thre
e banks funded by a presidency government (British Govt), the other tw
o were the Bank of Bombay in 1840 and the Bank of Madras in 1843.
• The three banks were merged in 1921 to form the “Imperial Bank of Ind
ia”, It acted as Central Bank of India (or) Quasi-central bank till the esta
blishment of RBI in 1935.
• After India's independence, Imperial Bank of India became the State Ba
nk of India in 1955.
• In 1960, the State Banks of India was given control of eight state-associ
ated banks under the State Bank of India (Subsidiary Banks) Act, 1959. T
hese are now called its associate banks.
 Punjab National Bank
• Lala Lajpat Rai founded Punjab National Bank on 19th May 1894, Lahor
e, Pakistan.
• The founding board was drawn from different parts of India professing
different faiths and of varying back-ground with, the common objectiv
e of creating a truly national bank that would further the economic int
erest of the country.
• PNB has the distinction of being the first Indian bank to have been star
ted solely with Indian capital that has survived to the present. (The firs
t entirely Indian bank, Oudh Commercial Bank , was established in1881
in Faizabad , but failed in 1958)
• PNB has had the privilege of maintaining accounts of national leaders s
uch as Mahatma Gandhi, Jawahar Lal Nehru, Lal Bahadur Shastri, Indir
a Gandhi, as well as the account of the famous Jalianwala Bagh Commi
ttee.
 Central Bank of India
• The Central Bank of India was established on 21 De
cember 1911 by Sir Sorabji Pochkhanawala with Sir
Pherozeshah Mehta as Chairman, and claims to hav
e been the first commercial Indian bank completely
owned and managed by Indians.
National Bank for Agricultu
ral & Rural Development
• NABARD was established on the recommendations of
B. Sivaraman Committee, on 12 July 1982 to implemen
t the National Bank for Agriculture and Rural Developm
ent Act 1981.
• It replaced the Agricultural Credit Department (ACD) a
nd Rural Planning and Credit Cell (RPCC) of Reserve Ba
nk of India, and Agricultural Refinance and Developme
nt Corporation (ARDC).
• It is one of the premier agencies providing developme
ntal credit in rural areas. NABARD is India's specialised
bank for Agriculture and Rural Development in India.
 National Housing Bank
• National Housing Bank (NHB), a wholly owned subsi
diary of Reserve Bank of India (RBI), was set up on 9
July 1988 under the National Housing Bank Act, 198
7.
• NHB is an apex financial institution for housing. NH
B has been established with an objective to operate
as a principal agency to promote housing finance in
stitutions both atlocal and regional levels and to pr
ovide financial and other support incidental to such
institutions and for matters connected therewith.
 Bank of India
• Bank of India is commercial bank with headquarters
at Bandra Kurla complex, Mumbai. Founded in 1906
, it has been government-owned since nationalisati
on in 1969.
• Bank of India is the first Bank in India to open a bra
nch in overseas. In 1946 the bank opened a branch
in London and then in 1974 opened a branch in Pari
s. This was the first branch of an Indian bank in Eur
ope.
 Bank of Baroda

• Bank of Baroda (BoB) is an Indian state-owned Inter

national banking and financial services company he
adquartered in Vadodara (earlier known as Baroda)
in Gujarat, India.
• The bank was founded by the Maharaja of Baroda,
Maharaja Sayajirao Gaekwad III on 20 July 1908 in t
he Princely State of Baroda, in Gujarat.
• It has more number of branches in abroad among I
ndian Banks.