Evolution of Banking in India

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About Evolution of Banking in India

Evolution of Banking in India

The concept of banking came to India in the last decades of the 18th century. The General Bank of India and The Bank of Hindustan were the first banks in India that are no more functional. The oldest bank in existence which originated in Bank of Calcutta in June 1806 is The State Bank of India, which immediately became The Bank of Bengal.

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This was one of the three administration banks, the other two being the Bank of Madras and the Bank of Bombay. These three banks were established under charters from the British East India Company. For many years,  the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India’s independence, became the State Bank of India.

Post independence the Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 conceived of as a mixed economy.

The major steps to regulate banking included:

  • The Reserve Bank of India, India’s central banking authority, was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer of Public Ownership) Act, 1948 (RBI, 2005b).
  • In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) “to regulate, control, and inspect the Banks in India.”
  • The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.

Then came the phase of nationalization. At this time despite  control and regulations of the RESERVE BANK OF INDIA, banks in India except The State Bank of India continued to be under the dominant governance of private persons. Thereafter, the Government of India issued a law and nationalized the 14 largest business banks with effect from the midnight of July 19, 1969. A second dose of nationalization came when 6 more commercial banks followed in 1980. With this second dose of nationalization, the Government of India controlled around 91% of the banking business of India.

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