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History Of Banking In India

History Of Banking In India

The history of banking in India is two hundred years old. Modern banking of India began in the British rule. In the early 19th century, the British East India Company started 3 banks – Bank of Bengal in 1806, Bank of Bombay and Bank of Madras in 1873.

History Of Banking In India

But later these three banks were merged into a new bank as ‘Imperial Bank Of India‘ which was merged with ‘State Bank of India’ in the year 1955. Allahabad Bank is oldest joint stock bank in India.

The Reserve Bank of India was established in the year 1935 and later Punjab National Bank, Bank of India, Canara Bank and Indian Bank were established.

Initially, in India, the branches and business of banks were limited to commercial centres. Banks provided their services only to commercial establishments.

Prior to independence, the Reserve Bank of India was active as the central bank of the country.

While the most prominent bank was Imperial Bank of India. At that time, there were three types of banks in India.

  • Scheduled banks
  • Non-scheduled banks
  • Foreign scheduled banks

After independence, the Reserve Bank of India retained the central bank status. And It was also declared as ‘bank of banks’.

Its was also entrusted with the responsibility of deciding all types of monetary policies and implementing them to other banks and financial institutions.

The controlling and regulatory powers of the Reserve Bank of India have played an important role in this task.

Nationalization Of Banks In India

The Reserve Bank of India was nationalized in 1949 after independence. Many of decision was taken by our government in the history of banking systems of India.

A few years later, in 1955, the Imperial Bank of India was also nationalized and renamed as State Bank of India.

Later, in 1959, eight regional banks were nationalized by enacting the State Bank of India. Presently, these eight banks are called the State Bank of India group banks.

Its has about 15,000 branches across the country. The names of these eight banks are;

  • State Bank of Hyderabad
  • State Bank of Bikaner and Jaipur
  • State Bank of Indore
  • State Bank of Mysore
  • State Bank of Travancore, etc.

India fourteen major banks were nationalized on 19 July 1969. And were all list of commercial banks.

Similarly, six more private sector banks were nationalized on 15 April 1980.

The branches of all these twenty banks are spread all over the country. At present, there are 19 nationalized banks.

Private And Co-operative Sector Banks

In January 1993, the Reserve Bank of India allowed thirteen new domestic banks to start banking activities.

The Nedungadi Bank was the first private sector bank in the history of banking in India, founded in 1899 by Rao Bahadur T.M. Appu Nedungadi in Kozhikode, Kerala

Prominent among them are UTI, Indus India, ICICI, Global Trust, HDFC and IDBI.

Along with domestic banks, banks of American, European and Asian countries are also doing business by opening branches in India.

Their branches are limited to metros and major cities. A large network of rural banks has been spread in the country.

These rural banks have played a very important role in the small banking business in the country.

Modern Reforms In Banking Sector Of India

The history of the banking sector in India has been reformed from time to time. For this, the government has to take the major step to control and monetary bank in India.

After that, the importance of banks increased in India and branches of these banks were opened in rural areas also.

In 1991, there was a need to reform these banks. For this, the Government of India appointed a Narasimham Committee On Banking Sector Reform under the chairmanship of Shri M. Narasimham in August 1991.

M. Narasimham made the following recommendations in 1991 to review the financial system.

1. This committee recommended a reduction in the liquidity ratio, with the legal liquidity ratio (SLR) being reduced from 38.5 per cent to 28 per cent in the next five years.

2. This committee recommended the abolition of directed lending programs.

3. According to this committee, interest rates should be determined by market forces. The Reserve Bank should not interfere in the determination of interest rates. know about repo rate and reverse repo rate. 

4. This committee also talked about improving the accounting system of banks.

5. This committee emphasized the establishment of special tribunals for timely recovery of loans of banks.

6. Narasimham Committee also stressed on the reconstruction of banks. According to this committee, 3 or 4 international banks, 8 or 10 national banks and some local banks and some rural banks should be within one country.

7. This committee recommended the abolition of branch licensing.

8. Narasimham Committee also recommended encouraging foreign banking in our country.

9. This committee recommended the abolition of double control over banks.

Earlier, the Ministry of Finance and Reserve Bank were controlled by banks. The Narasimham Committee suggested that banks should be controlled only by the Reserve Bank.

Following are the main recommendations of the Narasimham committee set up in 1998

1. The merger of strong commercial banks will create the maximum economic and commercial environment and will lead to the development of industries.

2. Strong commercial banks should not be merged with weak commercial banks.

3. The ratio of capital to risky assets should be brought down to 9 per cent by 2000 and 10 per cent by 2002.

4. Unconfirmed debts covered by government securities should be treated as non-performing assets.

5. Banks should be empowered to control interest on loans below Rs 2,00,000 lakh.

Banking in present-day India

Banking in India is very convenient and hassle-free. Anyone can easily process transactions whenever one needs to. Common services offered by banks in India are as follows –

Bank accounts: This is the most common service in the banking sector. Any person can open a bank account which can be a savings account, current account or deposit account.

Loan accounts: You can approach any bank for different types of loans. It can be a home loan, car loan, personal loan, loan against shares and educational loan or any loan.

Money Transfer: Banks can issue drafts, money orders or checks to transfer money from one corner of the world to another.

Credit and debit cards: All banks offer credit cards to their customers. Which can be used to buy products and services or to borrow money.

Lockers: Most banks have lockers facility in which the customer can keep their important documents or valuables safe.

Banking service for NRIs

NRIs can open accounts in almost all Indian banks. NRIs can open three types of accounts:

  • Non-Resident Account (Ordinary) – NRO
  • Non-Resident (External) Rupee Accounts – NRE
  • Non-Resident (Foreign Currency) Account – FCNR


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