Evolution of Banking Institutions in India

 

Introduction and Evolution of Banking Institutions in India

Definition of Banking

—Banking Regulation Act, 1949, Section 5(b) defines banking as, 'accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable, by cheque, draft, and order or otherwise.'

Evolution of Banking Institutions in India

I. Pre-Independence Phase (1786-1947)

• —The origin of the Banking system in India started with foundation of Bank of Calcutta in 1786.
• —Three presidency banks (British East India Company)

   ◦Bank of Bengal, (1809)

   ◦Bank of Bombay (1840) 

   ◦Bank of Madras (1843)

• —In 1935, the presidency banks merge together and formed a new bank named Imperial Bank of India.
• —The Imperial Bank of India subsequently named the State Bank of India.
• —The first Indian-owned Allahabad Bank (1865).
• —In 1895, the Punjab National Bank was established 
• —The Bank of India founded in 1906 in Mumbai.
• —1906 and 1913 - commercial banks established under Indian ownership

    ◦Canara Bank,  Central Bank of India,  ◦Bank of Mysore, ◦Indian Bank,◦Bank of Baroda

• —RBI (1935) The central Bank of India, RBI establish in 1935 on the recommendation of Hilton-Young Commission.
• —At that time, the Banking system was only covered the urban population and need of rural and agriculture sector was totally neglected.   

II. Post- Independence Phase (1947 to till)

• —The entire Banking sector was under private ownership.
• —The rural population to dependent on small money lenders
• —To solve these issues Gvt. nationalised the RBI in 1949.
• —In 1955 the Imperial Bank of India was nationalised and named the State Bank of India.
• —The Banking Regulation Act enacted in 1949.

III. Nationalisation Period (1969 to 1991)

• —In 1969, Government of India nationalised 14 major banks
• —Banks had national deposits were more than 50 crores.
• ◦Allahabad Bank, Bank of India , Punjab National Bank, Bank of Baroda, Bank of Maharashtra, Central Bank of India, Canara Bank
• ◦Dena Bank, Indian Overseas Bank, Indian Bank, United Bank, Syndicate Bank, Union Bank of India, UCO Bank        
• —The Indian Banking system immensely developed after nationalisation
• —the rural and weaker section of the society was still not covered under the system.

• —To solve these issues, the Narasimham Committee in 1974 recommended 
• —The establishment of Regional Rural Banks (RRB). On 2nd October 1975, 
• —RRBs were established with an objective to extend the amount of credit to the rural section of the society.
• —Six more banks further nationalised in the year 1980.
• —With the second wave of nationalisation, the target of priority sector lending was also raised to 40%.
• ◦Andhra Bank , Corporation Ban◦New Bank of India, Oriental Bank of Commerce, Punjab & Sindh Bank, Vijaya Bank

IV.  Liberalisation Phase (1990 to till)

• —In order to improve financial stability and profitability of Public Sector Banks,
• —The Government of India set up a committee under the chairmanship of Shri. M. Narasimham.
• —The committee suggested for no more nationalisation of banks.
• —Foreign banks would be allowed to open offices in India
• —Public sector banks and private sector banks should be treated equally
• —Adopt merchant banking and underwriting, retail banking, etc.
• —Now, foreign banks and Indian banks permitted to set up joint venture
• —10 Privates players got a license from the RBI to entry in the Banking sector.
• ◦Global Trust Bank, ICICI Bank, HDFC Bank, Axis Bank, Bank of Punjab, IndusInd Bank, Centurion Bank, IDBI Bank, Times Bank and Development Credit Bank. The Government of India accepted all the major recommendation of the committee