History of Indian Banking System

By Banking_awareness 1 years ago
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A bank is a financial institution that accepts deposits from the public and creates credit. Banking concept in India brought by Europeans.Bank of Hindustan established in 1770 and it was first bank at Calcutta under European management.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 :
 1. Bank of  Calcutta - June 2,1806 in Calcutta(renamed as Bank of Bengal in 1809).
 2. Bank of  Bombay - April 15,1840 in Bombay.
 3. Bank of Madras - July 1,1843 in Madras.
               These 3 banks worked as quasi Central banks ,until the Reserve Bank of India was established in 1935.On 27 January ,1921 these three banks were merged to form the Imperial Bank of India.In 1955,this Imperial Bank of India was nationalized and renamed as State Bank of India.Prior to establishment of RBI, the functions of a central bank were virtually being done by the Imperial Bank of India.(for more details on RBI click here ).

Nationalization of Banks 

Nationalization is the process of transforming private assets into public assets by bringing them under the public ownership of a national government or state.The nationalization of the banks boosted the confidence of the public in the Banking system of the country. 
Eight subsidiary of SBI was nationalized in 1959. 
                       â€¢ State Bank of Patiala
                       â€¢ State Bank of Hyderabad 
                       â€¢ State Bank of Travancore 
                       â€¢ State Bank of Mysore  
                       â€¢ State Bank of Saurashtra 
                       â€¢ State Bank of Indore
                       â€¢ State Bank of Bikaner
                       â€¢ State Bank of Jaipur
               State Bank of Bikaner and State Bank of Jaipur were merged in 1963 into one entity called State Bank of Bikaner and Jaipur.State Bank of Saurashtra merged with SBI in 2008 . State Bank of Indore merged with SBI in 2010.
              14 commercial banks were nationalized in 19th July, 1969. Smt. Indira Gandhi was the Prime Minister of India, during in 1969. These were –
                           1. Allahabad Bank 
                           2. Bank of Baroda 
                           3. Bank of India 
                           4. Bank of Maharashtra 
                           5. Canara Bank 
                           6. Central Bank of India 
                           7. Dena Bank 
                           8. Indian Bank
                           9. Indian Overseas Bank   
                         10. Punjab National Bank 
                         11. Syndicate Bank
                         12. Union Bank 
                         13. United Bank of India 
                         14. United Commercial Bank(renamed as UCO bank in 1985) 
            On 15 April 1980, another six banks were nationalized with deposits over 200 crore.
                         1. Andhra Bank 
                         2. Corporation Bank 
                         3. New Bank of India (In 1993 merged with Punjab National Bank) 
                         4. Oriental Bank of Commerce 
                         5. Punjab and Sind Bank 
                         6. Vijaya Bank

Regional Rural Banks 

The nationalization of the banks in 1969 boosted the confidence of the public in the Banking system of the country. However, in the early 1970s, there was a feeling that even after nationalization, there were cultural issues which made it difficult for commercial banks, even under government ownership, to lend to farmers. This issue was taken up by the government and it set up Narasimham Working Group in 1975. On the basis of this committee’s recommendations, a Regional Rural Banks Ordinance was promulgated in September 1975, which was replaced by the Regional Rural Banks Act 1976. The objective behind the formation of RRBs was to serve large unserved population of rural areas and promoting financial inclusion.The RRBs were owned by three entities with their respective shares as follows: 
 Central Government → 50% 
 State government → 15% 
 Sponsor bank → 35% 
              Regional Rural Banks are regulated by National Bank for Agriculture and Rural Development (NABARD). On the recommendation of M.Narasimham committee, first RRB was Prathama bank in Moradabad(Uttar Pradesh) ,sponsored by Syndicate Bank ,established on 2nd October, 1975 with capital of Rs. 5 crore . Goa and Sikkim have not yet established any RRBs. 

Other banking institutions :

With a view to meet the specific requirement from the different sector (i.e. agriculture, housing, foreign trade, industry) some apex level banking institutions were also setup like                  NABARD (est. 1982)
           EXIM (est. 1982) 
           NHB (est. 1988) 
           SIDBI (est. 1990)

Private sector Banks 

Even after nationalization and the subsequent regulations that followed, a large portion of masses are untouched by the banking services. Considering this, in 1991, the Narsimhan committee gave its recommendation i.e. to allow the entry of private sector players into the banking system. Following this RBI gave license to 10 private entities, of which 6 are survived, which are- ICICI, HDFC, Axis Bank, IDBI, Indus, DCB. In 1998, the Narsimhan committee again recommended entry of more private players. As a result RBI gave license to                                    Kotak Mahindra Bank (2003)
        Yes Bank (2004) 
               In 2013-14,3rd round of bank licensing took place. And in 2014 IDFC bank and Bandhan Bank emerged. In order to further financial inclusion, RBI also proposed to set up 2 kind of banks i.e.Payment Banks and Small Banks.

Some important points :

1. India's oldest joint stock bank is Allahabad Bank established in 1865.It is also known as India's oldest public sector bank .
2. 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.
3. The first bank purely managed by Indians was Punjab National Bank ,established in Lahore in 1895.
4. The first Indian commercial bank which was wholly owned and managed by Indians was Central Bank of India, established in 1911.Central Bank of India is also called India's first Truly Swadeshi Bank .
5. Union Bank of India was inaugurated by Mahatma Gandhi in 1919. 
6. Bank of India was the first bank to open its branch outside India in London in 1946.
7. ICICI Bank was the first Indian bank to provide internet banking facility.
8. Central Bank of India was the first public bank to introduce Credit card.
9. ICICI bank is the first bank to provide mobile ATM.
10. Savings account system in India was started by Presidency Bank, 1833. 
11. SBI was the first bank to introduce mutual fund .
12. First women bank in India is Bhartiya Mahila Bank.   


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