Search in Indianmoney's WealthPedia

Home Articles Phases of Indian Banking

Phases of Indian Banking Research Team | Posted On Saturday, February 21,2009, 06:21 PM

5.0 / 5 based on 7 User Reviews

Phases of Indian Banking



The journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below :

  • Phase I
  • Phase II
  • Phase III

Indian Banking Phase I

The General Bank of India was established in the year 1786. Bank of Hindustan and Bengal Bank came next. The East India Company has established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and it was called as ‘Presidency Banks’. These three banks were merged in 1920 and Imperial Bank of India was come into force which started as private shareholders banks, mostly Europeans shareholders.

Want to know more on Investment Planning? We at will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products.

Allahabad Bank was established in 1865, first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up in between 1906 and 1913and in 1935 Reserve Bank of India came into force.

The growth of banking sector was very slow during the first phase and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 small banks at that time. 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 Banking Regulation Act 1949 by amending Act of 1965. Reserve Bank of India was vested with wide-ranging powers for the supervision of banking in India as the Central Banking Authority.

See Also: Consolidation in Indian Banking Sector

Indian Banking Phase II

Government of India has taken major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalised Imperial Bank of India with extensive banking facilities on a large scale operation in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country.

State Bank of India, including its seven subsidiaries was nationalized in 1960, 1969, major process of nationalisation was carried out. It was the effort of the former Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country were nationalised. They are;

  • Central Bank of India
  • Syndicate Bank
  • Union Bank
  • Bank of Baroda
  • Canara Bank
  • Indian Bank
  • UCO Bank
  • Bank of India
  • Bank of Maharashtra
  • Dena Bank
  • Punjab National Bank
  • Indian Overseas Bank
  • Allahabad Bank
  • United Bank of India

Second phase of nationalization Indian Banking Sector Reform was started in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership.

See Also: Banking system in India

The following are the important steps taken by the Government of India to Regulate Banking Institutions in the Country

  • 1949: Enactment of Banking Regulation Act.
  • 1955: Nationalisation of State Bank of India.
  • 1959: Nationalisation of SBI subsidiaries.
  • 1961: Insurance cover extended to deposits.
  • 1969: Nationalisation of 14 major banks.
  • 1971: Creation of credit guarantee corporation.
  • 1975: Creation of regional rural banks.
  • 1980: Nationalisation of seven banks with deposits over 200 crore.

After the nationalisation of banks, the branches of the public sector bank India grown to approximately 800% in deposits and advances took a huge jump by 11,000%.

Banking in the brightness of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions.

See Also: List of Banks in India

Indian Banking Phase III

This phase has introduced many more facilities and changes in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalization of banking practices.

The country is rushed with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking are introduced. The entire system became more convenient and speedy. This face has given more importance to time than money. The financial system of India has shown a great deal of flexibility. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries faced. This is all due to a flexible exchange rate system, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have restricted foreign exchange exposure.

See also: Types Of Cheques

For the past three decades India's banking system has several outstanding achievements in its credit. The most striking is its widespread reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country, this is one of the main reasons of India's growth process.

The government's regular policy for Indian bank has paid rich dividends with the nationalization of 14 major private banks of India. Years ago an account holder had to wait for hours at the bank counters or for withdrawing his own money for getting a draft. Today, he has a choice. In those days the most efficient bank transferred money from one branch to other in two days. But now it is very simple as instant messaging. Money has become the order of the day.

You May Also Watch

Iframe Content

Keep your Financial Cognizance up to date with IndianMoney App. Download NOW for simple tips & solutions for your financial wellbeing.

Have a complaint against any company?'s complaint portal can help you resolve the issue. Just visit and lodge your complaint. If you want to post a review on any company you can post it on review and complaint portal

Be Wise, Get Rich.

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.