History of Banking in India
Globally, the story of banking has much in common, as it evolved with the money lenders accepting deposits and issuing receipts in their place. Banking was fairly varied and catered to the credit needs of the trade, commerce, agriculture as well as individuals in the economy.
The pre-independence period was largely characterised by the existence of private banks organised as joint stock companies. Most banks were small and had private shareholding of the closely held variety. They were largely localised and many of them failed.
The period from 1967 to 1991 was characterised by major development, viz., social control on banks in 1967 and nationalisation of 14 banks in 1969 and 6 more in 1980. The period beginning from the early 1990's witnessed the transformation of the banking sector as a result of financial sector reforms that were introduced as a part of structural reforms initiated in 1991.
Early Phase of Indian Banks, from 1786 to 1969:
The first bank in India, the General Bank of India, was set-up in 1786. Bank of Hindustan and Bengal Bank followed. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called them Presidency banks. These three banks were amalgamated in 1920 and the Imperial Bank of India, a bank of private shareholders, mostly Europeans was established.
Alahabad Bank was established, exclusively by Indians, in 1865. Punjab National Bank was set-up in 1894 with headquarters in Lahore.Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. The Reserve Bank of India came in 1935.
The growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1,100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with the Banking Companies Act, 1949, which was later changed to the Banking Regulation Act, 1949 as per amending Act of 1965 (Act No. 23 of 1965). The Reserve Bank of India (RBI) was vested with extensive powers for the supervision of banking in India as the Central banking authority. During those days, the general public had lesser confidence in banks. As an aftermath, deposit mobilization was slow. Moreover, the savings bank facility provided by the Postal department was comparatively safer, and funds were largely given to traders.
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