April 25, 2020

History of Banking in India in details

History of Banking in India
Banking system is mainly divided into commercial banks, Regional Rural Banks, Cooperative Banks etc. The important phase in the history of Indian banking was nationalization of banks that makes way for the Indian Economy to enter in the top 10 economies of the world. In this article, we will brief you about the history of banking in India.
Phases of Indian Banking System - 
The Pre-Independence Phase i.e. before 1947,Second Phase from 1947 to 1991,Third Phase 1991 and beyond
Pre-Independence Phase i.e. before 1947 - 
This phase is characterized by the presence of a large number of banks (more than 600). Banking system commenced in India with the foundation of Bank of Hindustan in Calcutta (now Kolkata) in 1770 which ceased to operate in 1832. After that many banks came but were not successful like -
General Bank of India (1786-1791)
Oudh Commercial Bank (1881-1958) – the first commercial bank of India.
Whereas some are successful and continue to lead even now like -
Allahabad Bank (Established in1865)
Punjab National Bank (,,1894, with HQ in Lahore (that time))
Bank of India (,,1906)
Bank of Baroda (,,1908)
Central Bank of India (,,1911)
While some others like Bank of Bengal (,,1806), Bank of Bombay (,,1840), Bank of Madras (,,1843) merged into a single entity in 1921 which came to be known as Imperial Bank of India. Imperial Bank of India was later renamed in 1955 as the State Bank of India.In April 1935, Reserve Bank of India was formed based on the recommendation of Hilton Young Commission (set up in 1926). In this time period, most of the bank were small in size and suffered from the high rate of failures. As a result, public condence is low in these banks and deposit mobilization was also very slow. People continued to rely on the unorganized sector (money lenders and indigenous bankers).
Second phase from 1947 to 1991 - 
Broadly the main characteristic feature of this phase is the Nationalization of the bank.With the view of economic planning, nationalization emerged as the effective measure.
Need for nationalization in India -
The banks mostly catered to the needs of large industries, big business houses.Sectors such as agriculture, small-scale industries and exports were lagging behind.The poor masses continued to be exploited by the moneylenders
Following this, in the year 1949, 1st January the Reserve Bank of India was nationalized.
Central Bank of India,Bank of India, United Commercial Bank,Allahabad Bank,United Bank,Bank of Maharashtra,Punjab National Bank,Bank of Baroda,Union Bank of India,Indian Overseas Bank,Canara Bank,Syndicate Bank,Indian Bank,Dena Bank
Six more commercial banks were nationalized in April 1980.
New Bank of India,Vijaya Bank,Andhra Bank,Punjab and Sindh Bank,Oriental Bank of Commerce,Corporation Bank
Meanwhile, on the recommendation of Narasimham committee, Regional Rural Banks (RRBs) were formed on Oct 2, 1975. The objective behind the formation of RRBs was to serve the large unserved population of rural areas and promoting financial inclusion.
With a view to meet the specic requirement from the different sector (i.e. agriculture, housing, foreign trade, industry) some apex level banking institutions were also setup like -
NABARD (Established in1982),EXIM (,,1982),NHB (,,1988),SIDBI (,,1990)
Impact of Nationalization -
Improved eciency in the Banking system – since the public's condence got boosted.Sectors such as Agriculture, small and medium industries started getting funds which led to economic growth.
Third Phase 1991 and beyond - 
This period saw a remarkable growth in the process of development of banks with the liberalization of economic policies. Even after nationalization and the subsequent regulations that followed, a large portion of masses is untouched by the banking services. Considering this, in 1991, the Narasimham 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, out of which few survived the market demands, which are- ICICI, HDFC, Axis Bank, IndusInd Bank, DCB. In 1998, the Narsimham committee again recommended entry of more private players. As a result, RBI gave license to the following new bies:
Kotak Mahindra Bank (Established in 2001)
Yes Bank (,,2004)
In 2013-14, 3 round of bank licensing took place. And in 2015, IDFC bank and Bandhan Bank emerged. In order to further financial inclusion, RBI also proposed to set up 2 new kinds of banks i.e. Payment Banks and Small Banks.

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