History of banking in India:
|History of Banking in India
Before we start we need to understand where the term “Banking
” emerged. The term Banking emerged from an Italian word “ Bancho
” which mean is “bench”. In early days people used to do transactions sitting on a bench since then this banking term came into the picture.
Italy is known for the origin of the World Banking System. The first-ever bank was also established in Italy in 1157 which name was Bank of Venice.
The second bank was Bank of Barcelona established in 1401,
The third bank was Bank of Geneva in 1407 and
The fourth bank was Bank of England established in 1694
So we knew some clues of the history of world banking. Now we must know what is the meaning of banking or general definition of banks.
Definition of Banking:
We won’t make the definition of banking complicated so in simple words “ Banks are the financial institutions which accepts deposits of funds from public and provide withdrawal whenever demanded by depositors. Banks also provide some other facilities like advance, credit, different types of loans to their customers ”
History of Banking in India:
The banking system in India was first started in 1770 and the first-ever bank was Bank of Hindustan.
The History of Banking of India can be categorized into seven phases. We need to study each and every phase of the banking system to understand better how the Banking System of India was evolved.
First Phase (1770 – 1806):-
The first-ever bank in India was the Bank of Hindustan established by Alexander and company in 1770. The main focus of Alexander and Company was to facilitate East India Co. and therefore couldn’t raise funds and shut down in 1831-1832.
Second Phase (1806 – 1860):-
In this phase Britishers had been captured Calcutta, Bombay and Madras, the three major states of India and these state were known as Presidency State. And in this era, three banks were established by Britishers which was also known as Presidency Banks and later these Presidency banks were merged with Imperial bank of India.
The Presidency Banks are as follows.
Bank of Calcutta (1806)
Bank of Bombay (1840)
Bank of Madras (1847)
Third Phase (1860 – 1913):-
In this phase, most of the current banks were established.
The first Joint Stock Bank in India was Allahabad Bank was established in 1865 and also known as the oldest commercial bank of India.
The first bank in India managed by Indians was Awadh Commercial Bank was established in 1881 in Faizabad (UP).
The Completely first Indian bank was Punjab National Bank was established in 1894.
The first indigenous bank was Central Bank of India where principle, funds, the management were Indian.
Some establishments of today’s banks are as follows.
- Bank of Baroda (1908)
- The central bank of India (1911)
Fourth Phase (1913 -1939):-
This phase was a very crucial phase on the empowerment of Banking point of view in India. The Presidency Banks were merged with Imperial Bank of India in this era only and later this bank will be known as State Bank of India in 1955. In this phase a committee, Central Banking Inspection Committee
was established and Reserve Bank of India Act 1934 was launched by the recommendation of this committee and later on 1st April 1935 Reserve Bank of India was established.
Fifth Phase (1939 – 1946):-
This phase was generally known for an extended period of banking India. In this phase, United Commercial Bank presently known as UCO Bank and Hindustan Commercial Bank were established.
Sixth Phase (1946 -1991):-
Most of the economic reforms became in this phase in the history of banking of India. Reserve Bank of India was nationalized on 1st Jan 1949 by the Banking Regulation Act 1949.
In this phase, the Imperial Bank of India became State Bank of India and SBI Subsidiary Act was passed in 1959 to make Indian State the associates of State Bank of India. Following is the list which became subsidiary of State Bank of India.
State Bank of Bikaner
State Bank of Travancore
State Bank of Patiala
State Bank of Hyderabad
State Bank of Mysore
State Bank of Saurashtra
State Bank of Jaipur
State Bank of Indore
Later in 1963 the financial condition of State Bank of Bikaner and State Bank of Jaipur became damaged and then these banks were merged and new bank State Bank of Bikaner and Jaipur was
formed and State Bank of Saurashtra and State Bank of Indore was merged with State Bank of India because of pathetic financial conditions.
The then Prime Minister Indira Gandhi nationalized 14 major banks having paid-up capital up to 50
Crore in 1969 and 8 banks whose capital was up to 200 crores.
Seventh Phase (1991 – 2019):
In 1991, The Prime minister PV Narasimha Rao and then Governor of RBI Dr Manmohan Singh launched new economic and industrial policies.
Private Banks were established in 1992 and foreign banks were permitted to open their beaches in India.
In 2013, Reserve Bank of India invited applications for private banks but only two banks Bandhan Financial Ltd and IDFC were approved among plenty of reputed organisations.
But the Government was not happy with the decision of RBI because Government of India wanted to encourage Private Banking in India to facilitate small and medium industry.
Therefore a committee was formed and according to recommendation of this committee Small Finance Bank having capital up to 100 crores and Payments Bank like India Post, Paytm, Airtel Money was established.
This was the brief history of Banking in India we will further discuss the Type of banking in India and Nationalization of banks in India. For these topics, you can check the link below.
Indian Banking System & Types of Banking in India