History of Banking in India- Evolution of Indian Banking System

The history of banking in India can be traced back to the 18th century, when the Bank of Hindostan and the General Bank of India were established. These early banks were primarily focused on financing trade and commerce, and they played a key role in the development of India’s economy.

Here are a few important points about the history of banking in India:

• In 1806, the Bank of Calcutta was established, which later became the State Bank of India. This was the first modern bank in India, and it was followed by the establishment of other banks in the following years.
• The Reserve Bank of India (RBI) was established in 1935 as the central bank of India. The RBI is responsible for regulating the banking sector and managing India’s monetary policy.
• In the years following India’s independence in 1947, the government nationalized many of the country’s major banks, including the State Bank of India and many others.
• In the 1990s, India began a process of economic liberalization and deregulation, which led to the entry of many new private banks into the market. Today, India has a large and diverse banking sector, with many different types of banks and financial institutions serving the needs of the country’s economy.
• The government of India has launched a number of initiatives in recent years to promote financial inclusion and expand access to banking services to all parts of the population, particularly in rural areas. These efforts have helped to make banking more accessible and affordable for millions of Indians.

Pre Independence Period (1786 – 1947)

The pre-independence period in Indian banking saw the establishment of several banks by private entrepreneurs to cater to the needs of trade and commerce. The East India Company was instrumental in setting up some of the earliest banks in India, which focused on financing trade with Europe and other parts of the world.

Some of the major banks that were established during the pre-independence period are:

These banks played a vital role in financing trade and commerce in India during the colonial period. However, they were largely focused on serving the needs of British-owned businesses and were not accessible to the common people. It was only after independence that the government of India began taking steps to expand access to banking services and promote financial inclusion.

Post Independence Period (1947 – 1991)

The period after India’s independence in 1947 marked a significant phase in the development of the country’s banking sector. The government of India began to play a more active role in regulating the banking industry and promoting financial inclusion to support economic growth and development.

In 1949, the Reserve Bank of India was nationalized and became the central banking institution of India. The government also established a number of public sector banks, such as State Bank of India and its associates, to cater to the banking needs of the population.

During this period, the banking industry underwent significant reforms to promote financial inclusion and address the issue of rural poverty. The government launched several initiatives, such as the Lead Bank Scheme and Regional Rural Banks, to improve access to banking services in rural areas.

The introduction of computerization and technology in the 1980s marked another significant milestone in the development of the banking industry in India. This led to the automation of many banking processes and the introduction of electronic fund transfers, making banking more accessible and efficient.

The following is the list of banks that were nationalized in 1969:

1. Allahabad Bank
2. Bank of Baroda
3. Bank of India
4. Bank of Maharashtra
5. Central Bank of India
6. Canara Bank
7. Dena Bank
8. Indian Bank
9. Indian Overseas Bank
10. Punjab National Bank
11. Syndicate Bank
12. UCO Bank
13. Union Bank of India
14. United Bank of India

He following is the list of banks that were nationalized in 1980:

1. Andhra Bank
2. Corporation Bank
3. New Bank of India
4. Oriental Bank of Commerce
5. Punjab and Sind Bank
6. Vijaya Bank

There were seven subsidiaries of the State Bank of India (SBI) that were nationalized in 1959. These subsidiaries were:

1. State Bank of Bikaner and Jaipur
2. State Bank of Hyderabad
3. State Bank of Indore
4. State Bank of Mysore
5. State Bank of Patiala
6. State Bank of Saurashtra
7. State Bank of Travancore

The nationalization of these subsidiaries of SBI was aimed at strengthening the banking system and promoting financial inclusion, particularly in the less developed regions of the country. By bringing these banks under its control, the government could ensure that they operated in the public interest, and directed credit to priority sectors of the economy.

Overall, the nationalization of banks in India has played a significant role in shaping the country’s banking sector and promoting economic growth and development.

Impact of Nationalisation

The nationalization of banks in India had a profound impact on the Indian banking sector and the Indian economy as a whole. The decision to nationalize banks was taken to ensure that banking facilities could reach every corner of the country and to ensure that banks could cater to the needs of all sectors of society. Here are some of the impacts of nationalization:

1. Expansion of banking facilities: One of the primary objectives of nationalization was to expand banking facilities to the rural and underprivileged sections of society. Nationalized banks opened branches in remote areas, making banking accessible to everyone.
2. Promotion of economic growth: Nationalized banks played a significant role in the promotion of economic growth in India. They provided loans to entrepreneurs, small businesses, and other sectors of society that were otherwise neglected by private banks.
3. Employment generation: Nationalization of banks created many job opportunities in the banking sector. The banks needed staff to manage the increased number of branches and operations.
4. Encouraged savings: Nationalized banks encouraged people to save money by offering various deposit schemes. This resulted in an increase in the savings rate of the country.
5. Reduced regional imbalance: Nationalized banks played a vital role in reducing the regional imbalance by opening branches in remote areas. This helped in reducing the economic disparity between different regions of the country.

The nationalization of banks played a critical role in shaping the Indian banking sector and the economy. It brought banking services to the masses, encouraged savings, promoted economic growth, and created job opportunities. The impact of nationalization is still felt today, and the banking sector continues to be an essential pillar of the Indian economy.

Liberalistaion Period (1991- Till Date)

The liberalisation period in Indian banking started in 1991 with the introduction of economic reforms. This period saw a significant change in the banking industry with the entry of new private and foreign banks. The government took several steps to liberalise the banking sector and reduce the dominance of public sector banks.

In 1993, the Reserve Bank of India (RBI) granted licenses to 10 private sector banks to commence operations in India, marking a significant shift in the country’s banking sector. These banks were:

1. HDFC Bank
2. ICICI Bank
3. Axis Bank
4. IndusInd Bank
5. Kotak Mahindra Bank
6. Yes Bank
7. IDFC First Bank
8. Federal Bank
9. Development Credit Bank
10. UTI Bank (now known as Axis Bank)

The entry of these private sector banks brought in a wave of competition and innovation in the banking sector. They introduced new products and services, improved customer service, and enhanced the overall efficiency of the banking system. The liberalization period also saw the emergence of foreign banks in India, further increasing competition and choice for customers. However, it also brought in new challenges such as the need for effective regulation and supervision to maintain stability in the financial sector.