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History of Banking

Country’s economy cannot develop without banks.  You can find an aspect of banking in our everyday life. The banking sector of the country is the lifeline of the economy of the country.

History of Banking

The Banking system of the country is the basis of the economy and economic development of the country. It is the most leading part of the financial sector of the country as it is responsible for more than 70% of the funds flowing through the financial industry in the country. The important phases in the Indian History of Banking were the Nationalization of the Bank.

  1. Pre -Independence Phase i.e., before 1947

  2. Post- Independence Phase 1947 to till date

  3. Liberalization Phase (1990 to till)

1. Pre-Independence Phase, i.e. before 1947

History of Banking
  • The Phase is characterized  by the presence of large no. of Banks which (more than 600).

  • Banking system started in India with the foundation of Bank of Hindustan (Calcutta) now in Kolkata established in 1770.

  • Many banks came but were not successful such as:

  1. General Bank of India ( 1786 -1791)

  2. Oudh commercial bank (1881- 1958) – the First Commercial Bank of India with limited liability.

  • Whereas some successful and continue to lead even now such as:

1. Allahabad bank ( est. 1864) 

2. Punjab National Bank ( est. 1894)

3. Bank of India ( est. 1906) 

4. Bank of Baroda (est. 1908) 

5. Central Bank of India (est. 1911) 

  • While some banks  like Bank of Bengal established in (1806), Bank of Bombay established in (1840), Bank of Madras established in (1843) merged into a single entity in (1921) which came to known as the Imperial Bank of India headquarters in Mumbai.

  • Imperial Bank of India was later renamed as The State Bank of India  in 1955.

  • April 1, 1935, Reserve Bank of India was formed based on the recommendation of Hilton young commission.

  • In this period most of the Bank was small in size and suffered from high rates  of failure

2. Post- Independence Phase from 1947 to till date

The whole Banking sector was under private ownership. The rural community of the country had to depend on small money lenders for their requirements. To solve these issues and better growth of the economy the Government of India nationalized the Reserve Bank of India ( RBI) on January 1, 1949.

The Need for Nationalization in India:

  1. One the Bank mostly catered to the needs of large company’s, large Business houses.

  2. Sector such as Agriculture, Small Scale Business, and Exports

14  Commercial Banks were Nationalized on July 19, 1949

1. Allahabad Bank
2. Bank of India
3. Punjab National Bank
4. Bank of Baroda
5. Bank of Maharashtra
6. Central Bank of India
7. Canara Bank 
8. Dena Bank
9. Syndicate Bank
10. Indian Bank
11. UCO Bank
12. United Bank
13. Indian Overseas Bank
14. Union Bank of India

  • The Indian Banking system immensely developed after nationalization but the rural and weaker section of the society was still not met under the system.

  • To solve this problem, The Narasimham Committee in 1974 recommended the establishment of Regional Rural Banks (RRB). Were formed on October 2, 1975, RRBs were established to extend the amount of credit to the Rural section of the society.

Six more Banks were Nationalized in April 1980.These are mentioned below:

1. Andhra Bank             
2. New Bank of India
3. Corporation Bank
4. Oriental Bank of Commerce      
5. Punjab & Sindh Bank
6. Vijaya Bank

3. Liberalization Phase (1990 to till)

History of Banking
  • To Improve the financial Profitability and Security of Public Sector Banks, the Government of India set up a committee under the Shri Narasimham committee. The committee recommended several measures to reform the banking sector.

  • Foreign banks would be entitled to open offices in India either as subsidiaries or as branches.

  • To make banks more Ambitious, the committee suggested that the public sector and private sector should be treated equally by the Government and Reserve Bank of India (RBI).

  • Following this RBI gave license 10 Privates entities entry in the Banking sector. These were HDFC Bank, ICICI Bank,  ICICI Bank, IndusInd Bank, Axis Bank, Centurion Bank, Times Bank, Bank of Punjab, Development Credit Bank and IDBI Bank

  • In 1998 Narasimham committee again recommend the entry of more private players.

  • Kotak Mahindra Bank ( 2001) and Yes Bank ( 2004) got a license from RBI

  • In 2014, RBI granted in-principle approval to IDFC and Bandhan Financial Services to set up banks.

  •  Further RBI also set up two kinds of small banks, i.e., Payment Bank and Small Bank.

  • In 2015, RBI gave license to 11 entities to launch payment bank and granted approval to 10 applicants to set up small banks.

Today, the Indian Banking industry is one of the most growing flourishing sectors. Banking sector of any country needs to be efficient, effective as it plays the active in the economic growth of the country.  

Note :

RBI issued a license to the Banks under section 22 (1) of Banking Regulation Act, 1949 to carry on the Business of (SFC) Small Finance Banks and Payment Banks of India

Committee on small banks: 

The application was analyzed evaluated by the External Advisory Committee. The External Advisory Committee for Small Banks Chaired by Usha Thorat, Former Deputy Governor of RBI.

Committee on Payment banks: 

The application was analyzed evaluated by the External Advisory Committee. The External Advisory Committee for Payment Banks Chaired by Dr. Nachiket Mor, Director Central Board of RBI.

List of Small Finance Bank

Banks EstablishedHeadquarters
Capital Small Finance BankApril, 2016 Jalandar, Punjab
Equitas Small Finance BankSeptember, 2016 Chennai, Tamil Nadu
Suryoday Small Finance BankJanuary, 2017 Belapur, Navi Mumbai
Utkarsh Small Finance BankJanuary, 2017 Varansi, UP
Ujjivan Small Finance BankFebruary, 2017 Bengaluru, Karnataka
ESAF Small Finance BankMarch, 2017 Thrissur, Kerala
AU Small Finance BankApril,2017 Jaipur, Rajasthan
Finacer Small Finance BankSeptember, 2017 Bengaluru, Karnataka
North East Small Finance BankOctober, 2017 Guwahati, Assam
Jana Small Finance BankMarch, 2018 Bengaluru, Karnataka

List of Payments Banks

BanksEstablishedHeadquarters
Airtel Payment BankNov, 2016New Delhi
Fino Payment BankJuly, 2017Noida, UP
Jio Payment BankAugust, 2017Mumbai, Maharastra
Paytm Payment BankNovember, 2017Mumbai, Maharastra
Aiditya Birla Payment BankFebruary, 2018Mumbai, Maharastra
India Post Payment BankSeptember, 2018New Delhi

Points to Remember :

This Following Points are important for Government exam :-

  • Mahatma Gandhi in 1919 inaugurated union Bank of India.

  • The First Governor of the Reserve bank of India was Osborne Smith.

  • The First Indian Governor of the Reserve bank of India was CD Deshmukh

  • ICICI was the First Bank of India to provide mobile ATM.

  • State bank of India has the maximum number of the Overseas Bank.

POINTS TO REMEMBER
  • Allahabad Bank was established in 1865 it the oldest Public Sector Bank in India having branches all over India.
  •  Imperial Bank of India was later renamed on July 1, 1955, as the State Bank of India.

  • The First Commercial Bank of India with limited liability to be managed by Indian board was Oudh Commercial Bank . It was established in 1881 at Faizabad.

  •  Punjab national bank is the first commercial Bank is fully managed by Indian, which was established in Lahore 1895.

  • The Central Bank of India is called   first truly swadeshi Bank, which was created in 1911 and wholly owned and managed by Indians

  • Saving accounts system in India  was started by Presidency bank in 1833

  • The First Indian Bank open Indian overseas Branches in Bank of India. It was established a branch in London in 1946.

  • ICICI Bank was the First Bank to provide Internet banking facility.

  • The Central Bank of India was the First public Bank to offer Credit Cards facility.

  • Capital Small Finance Bank in India’s First Small Finance Bank started its Banking operations in April 2016 in Jalandhar Punjab.

  • Airtel Payment bank limited is the First Payment Bank of India.
  • On December 18, 2018, IDFC bank and non-banking Financial Company Capital First Merged to create IDFC first Bank. Its headquarter in Mumbai.

  • On January 2, 2019, the Cabinet approves the Merger of Vijaya bank and Dena bank with Bank of Baroda. After this Merger, the Bank of Baroda will become the third Biggest Bank in the Public Sector.

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