Search in Indianmoney's WealthPedia

Home Articles History of Banking in India

History of Banking in India Research Team | Posted On Saturday, February 21,2009, 06:18 PM

5.0 / 5 based on 1 User Reviews

History of Banking in India



Brief history of banking in India:

In India, banking has originated in the 18th century. The first banks were The General Bank of India, which started in 1786, and the Bank of Hindustan, now both of are not in existence. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost without delay became the Bank of Bengal, this was one of the three presidency banks, the other two were the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as central banks, as did their successors. These three banks merged in 1925 to form the Imperial Bank of India, which, after India's independence, became the State Bank of India.

Indian banking system introduction:

Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as an outcome of the economic crisis of 1848-49. The Allahabad Bank has established in 1865 and still functioning today, it is the oldest Joint Stock bank in India. When the American Civil War stopped the supply of cotton to Lancashire from the Confederate States, promoters started new banks to finance trading in Indian cotton, most of the banks opened in India during that period failed. The depositors lost money and lost faith in the bankers to keep deposits with them. Subsequently, banking in India remained in the hands of Europeans for next several decades until the beginning of the 20th century. In the 1860s Foreign banks too started to arrive, particularly in Calcutta. The Comptoire d'Escompte de Paris opened a branch in India, on is at Calcutta in 1860 and another in Bombay in 1862; subsequently in Madras and Pondichery. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and it became a banking center.

The Bank of Bengal later became the State Bank of India. Around the turn of the 20th Century, the Indian economy was passing through a relative period of constancy. Around five decades had elapsed since the Indian Mutiny, social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular cultural and religious communities.

The presidency bank dominated banking in India but there were some exchange banks also and a number of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, were mainly concentrating on financing foreign trade. Indian joint stock banks were generally undercapitalized and lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some old sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments."

Evolution of banking system:

By the 1900s, the market expanded with the establishment of banks such as Punjab National Bank, in 1895 and Bank of India, in 1906 - both of which were established under private ownership. Punjab National Bank is the first Swadeshi(domestic) Bank of India, founded by the leaders like, Lala Lajpat Rai, Sardar Dyal Singh Majithia. The Swadeshi movement in particular inspired local businessmen and political leaders to set up banks for the Indian community. A number of banks were started then have survived to the present such as Bank of Baroda, Bank of India, Central Bank of India, Indian Bank , Canara Bank and Corporation Bank.

State Bank of India is the oldest bank in existence in India, a government-owned bank that started its operation in June 1806 and that is the largest commercial bank in the country. Reserve Bank of India is the Central bank of India. In 1935 it has formally taken over these responsibilities from the then Imperial Bank of India. After India's independence in 1947, the RBI was nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial banks; the government nationalized the six next largest in 1980.

Currently, India has 88 scheduled commercial banks (SCBs), 27 public sector banks (that is with the Government of India holding a stake), 29 private banks (these don’t have government stakeand 31 foreign banks. They have a combined network of over 53,000 branches and more than 17,000 ATMs. According to a report by ICRA Limited, the public sector banks hold over 75 percent of total assets of the banking industry, in that private and foreign banks holding 18.2% and 6.5% respectively.

What is your Credit Score? Get FREE Credit Score in 1 Minute!

Get Start Now!
Get It now!

This is to inform that Suvision Holdings Pvt Ltd ("") do not charge any fees/security deposit/advances towards outsourcing any of its activities. All stake holders are cautioned against any such fraud.