History of Banking in India

Old Banking System:

Phase-I : Early Phase - 1770 to 1969
Phase-II : Nationalisation - 1969 to 1991
Phase-III: Banking Sector Reforms - 1991

Functions :

Accepting Deposits.
Issue of DDs/Remittences/TTs
Loans and Advances
Safe custody of valuables/Lockers
Working manually through Ledgers/Books only
Loans at very high rate of Interest
Token system for withdrawal of money from a/c.

Disadvantages of Old Banking System :

Human errors.
Time consuming – account opening, passing of cheques, payments etc.
Limited use of technology.
Fraud prone.

New Age Banking :

Core Banking Solutions
Customer Relationship Management
Better customer service – Anywhere Anytime Banking
Better cross selling
RTGS/NEFT replaced DDs/TTs
ATMs/Debit Card/Credit Card/ Internet Banking

History of Banking –

India has a long history of banking and it was originated in the last decade of 18th century.

Actually the growth of Banking Industry in India may be studied in terms of two broader phases :

1.Pre-Independence 1770-1947
2.Post Independence 1947 to till date

And Post Independence phase may be further divided into 3 phases:

1.Pre-Nationalisation 1947-1969
2.Post Nationalisation 1969-1991
3.Post Liberalisation 1991 –

Among the first banks were :

Liquidated/Failed
Bank of Hindostan 1770 1829-32
The General Bank of India 1786 1891

Both these banks are not in existence now.

During British Rule, the East India Co. Established 3 Banks, known as “Presidency Banks”

1809 Bank Of Bengal | Presidency
1840 Bank of Bombay | Banks
1843 Bank of Madras |

In 1921 all the Presidency Banks were amalgamated into ‘Imperial Bank of India’.
In 1955 Imperial Bank of India was nationalised and given the name of ‘State Bank of India’ established under the State Bank of India Act 1955.

The other banks established during this period were :

1.1865 Allahabad Bank
2.1894 Punjab National Bank
3.1906-1913 BOI, CBI, BOB, Canara Bank,

Indian Bank, Bank of Mysore

After independence GOI came up with Banking Companies Act 1949 which was later changed to Banking Regulations Act 1949 to regulate activities of all the banks.

There were seven subsidiaries of SBI, which were nationalised in 1959 :

State Bank of Patiala |Merged
State Bank of Hydrabad |with SBI
State Bank of Bikaner & Jaipur |on
State Bank of Mysore |01.04.2017
State Bank of Travancore |________
State Bank of Saurashtra { Merged in 2008}
State Bank of Indore {Merged in 2010}

Nationalisation :

19th July 1969, 14 major Banks were nationalised –
1. Central Bank of India 8. IOB
2. Bank of Maharashtra 9. BOB
3. Dena Bank 10.Union Bank
4. Punjab National Bank 11. Allahabad Bank
5. Syndicate Bank 12. UCO Bank
6. United Bank of India 13. Canara Bank
7. Indian Bank 14. Bank of India

In 1980, another 6 major Banks were nationalised, with deposits over Rs.200 crore raising the number to 20.
1.Andhra Bank
2.Oriental Bank of Comm.
3.New Bank of India

4. Corporation Bank

5. Punjab & Sind Bank

6. Vijaya Bank

(now merged with PNB in Sept.1993)

DICGC – 1971 Deposit Insurance and Credit Guarantee Corporation was established.
RRBs – 1975 Regional Rural Banks were formed for financial inclusion and development of rural economy.

NABARD –

1982 National Bank for Agriculture and Rural Development was established for credit to agriculture and cooperative sector
1991 - Banking Sector Reforms : Narsimham Committee submitted its report.
1993 – Banking Regulation Act was amended and gates for new Private Sector Banks were opened.

New generation banks were opened:

HDFC, Axis Bank, ICICI, Yes Bank, KMB.
1997 – Narsimham Committee-II (Reforms)
NPA / Income Recognition
Transparency in Balance Sheet
2002 – SARFAESI Act (Securitisaion and Reconstruction of Assets and Enforcement of Security Interest 2002 Act)