Banking history of India:Important article about Indian banking system for competitive exams

Safalta Expert Published by: Purnima Maurya Updated Tue, 10 May 2022 10:46 PM IST


 Do you know when banking started in India, if you want to answer any question related to the bank, then read this article carefully for that.

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Nowadays, the nature of banking has changed a lot since the time of independence. Today we will know about the complete history of banking in this article, questions related to this have been asked continuously in UPSC UPPCS and PCS examinations of other states. Also, it is a very important topic for other exams like banking and other 1-day examination for other examinations.

History of banking

Banking history of India: Pre-independence period


• The origin of the banking system in India dates back to the establishment of the Bank of Calcutta in 1786.
• In the 19th century, the Presidency Banks, Bank of Bengal, Bank of Bombay and Bank of Madras were established under the charter of the British East India Company.
• In 1935, the Presidency Banks were merged and a new bank named Imperial Bank of India was established.
• Later the Imperial Bank of India known as the State Bank of India
• The first Indian bank in Allahabad was established in 1865 in Allahabad.
• In 1895, the National Bank of Punjab was established.
• Bank of India founded in Mumbai on 19 06
• The commercial banks Canara Bank, Indian Bank, Central Bank of India, Bank of Baroda and Bank of Mysore were established between 1906 and 1913.
• India's central bank, RBI, was established in 1935 on the recommendation of the Hilton-Young Commission.
• At that time, the banking system was confined to the urban area only and the needs of the rural and agricultural sectors were completely neglected.

banking history of India: independence period

 In 1969, the Government of India nationalized 14 major private banks; one of the big banks was the Bank of India. The Indian banking sector is broadly classified into….
• scheduled - The scheduled banks are those included under the 2nd Schedule of the Reserve Bank of India Act, 1934. The SBI merged its Associate banks into itself to create the largest Bank in India on 1 April 2017.
• non-scheduled banks -Unscheduled banks, by definition, are those that do not comply with RBI regulations.

Source: Google

They are not mentioned in the second schedule of the RBI Act of 1934 and are therefore considered incapable of serving and protecting the interests of depositors.
Banking history of India:Nationalised bank list
 In short, we can say, By the time India acquired independence, all the major banks of the country were privately run, and the concern was that people in rural areas still depended on lenders for economic assistance. To solve this problem, the government of the day has decided to nationalize banks. The banks were nationalised in 1949 under the banking regulation of India act 1949. When the Reserve Bank of India was nationalized in 1949
According to this State Bank of India was formed in 1955 and other 14 banks between 1969 and 1991. These were banks whose national deposits were over 50 crores.


  Banking history of India:Below is a national list of 14 of these banks in 1969:

• Allahabad Bank
• Bank of India
• Bank of Baroda
• Bank of Maharashtra
• Central bank of India
• Canara Bank
• Dena Bank
• Overseas Indian Bank
• Indian bank
• National Bank of Asia
• Syndicate Bank
• Union Bank of India
• United bank
• UCO Bank
In 1980, there were more than 6 national banks, bringing that number to 20 banks. These banks are included
• Andhra Bank
• Corporate bank
• New Bank of India
• Eastern Bank of Comm.
• Bank of Asia and Sindh
• Vijaya Bank
More than twenty-seven banks listed above were subsidiaries of SBI, which became national in 1959;
• State Bank of Patiala
• State Bank of Hyderabad
• Bikaner State Bank and Jaipur
• Mysore State Bank
• Republic Bank of Travancore
• Republic Bank of Saurashtra
• State Bank of Indore
All these banks were later merged into the India State Bank in 2017 except Saurashtra City, which was merged in 2008 and Indore State Bank, which was merged in 2010.

Banking history of India:Why need for nationalization


Previously, all merchant banks had their own separate and independent accounts and limited their projects to pave the way for maximum profit, which should be considered normal, as most of these banks had some partners in capitalism that were interfering with their interests. ; Personally, bankers were accustomed to employing only facilities and products. The poor, weak, Dalit and rural people of the society generally do not even know the name of the banker. Seth-Sahukar and Mahajan are so engrossed in daily activities that they have forgotten their true identity. In India, they live in villages and farmers and peasants in villages. Before the nationalization of bankers, the condition of the peasants was so bad that the bitter truth about them was that Indian peasants were born with loans. Debt increases after the debt die. As a result of capitalism, the rich and the poor have descended into these two levels of poverty and the country has faced a social crisis. Along with social inequality, widespread economic inequality has spread in the nation. Thus social and economic development was hampered and the need for economic revolution was felt like the reason for this, so there was a national need to include them in the development of the national economy of the country. Discharge from the countryside. As a result, banks are nationalized.

Banking history of India:Result of nationalization

After two major phases of nationalisation, about 80% of the banking sector came under public sector/government ownership. It was after the nationalization of banks, that the branches of public sector banks in India grew by almost 800 per cent, and advances achieved a massive 11,000 per cent growth, which was a huge boost to the economy. Government ownership gave greater confidence in the public vested trust and stability of public sector banks.

Banking history of India:Impact on banks after Liberalisation ( after1991)

Several studies suggest that economic liberalization increases the likelihood of a financial crisis without any crisis during the normal period, the volatile period before the start of bank pay and the crisis/period. Using recently updated data on financial systems, we found an inverse relationship between bank liberalization and the likelihood of crisis in 49 countries between 1980 and 2010. Empirical effects suggest that the relationship between liberalization and banking stability is dependent. The order and vigilance of the chief authority for the most part. With very weak regulation and monitoring, silver hazards likely increase with emissions, but this relationship has changed as regulation and vigilance become important.

q1-People also ask How is the banking system in India?

Answer -India's banking system is dominated by government-owned 'public sector banks' (PSBs), which account for around 60 per cent of commercial banking system assets. Since the mid-2010s, these banks have been beset by problems with non-performing loans (NPLs) and low capital levels (Graph 2) (RBA 2019).

Q2.Who is the No 1 bank in India?

Answer.HDFC bank

Q3-.What is the importance of banking in India?

Answer.The banking sector plays a major role in the development of the economy, as it mobilizes deposits and provides credit to various sectors across India. In India, the banking sector collects surplus funds from customers/depositors in the form of deposits and channelizes them to borrowers in the form of loans.

Q4-.What is banking in simple words?

Answer-Banking is defined as the business activity of accepting and safeguarding money owned by other individuals and entities, and then lending out this money in order to conduct economic activities such as making profit or simply covering operating expenses.

Q5.Who is the richest bank in India?

Answer.HDFC Bank currently ranks as the largest private bank in India, both by assets and market capitalization. The company has the third-largest market capitalization on the Indian stock exchanges, with $112.76 billion.

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