History of Banking in India
The Indian banking system is one of the
oldest in the world and has evolved through a series of historical phases—from
traditional money lending practices in ancient
Table of Contents
1. Ancient Banking Practices in
2. The Emergence of Modern Banking (18th – 19th Century)
3. Pre-Independence Banking Structure
4. Post-Independence Banking Reforms
5. Nationalization of Banks in 1969 and 1980
6. Liberalization and the 1991 Reforms
7. Rise of Private and Digital Banking
8. Role of RBI (Reserve Bank of
9. Current Banking Landscape in
10. Challenges Facing
the Indian Banking Sector
11. History of banking in India ipleaders
12. History of banking in India for Bank Exam
13. Conclusion
14. FAQs
1. Ancient Banking Practices in India
The Vedic era (c. 2000–600 BCE) is when
· Moneylenders
and Shroffs: Small traders and
moneylenders known as Shroffs or Seths provided loans,
accepted deposits, and facilitated credit.
· Hundi
System: Introduced during
medieval times, the Hundi system functioned as a credit instrument used for
trade and remittances.
Note: In
2. The Emergence of Modern Banking (18th –
19th Century)
Modern banking in
Key Milestones:
1770: The British agency firm Alexander
& Co. founded the Bank of Hindostan
The Imperial Bank of
· 1806: Bank of
Presidency Banks: Three significant banks were founded: the Bank of Bengal, the Bank of Bombay (1840), and the Bank of Madras (1843).
3. Pre-Independence Banking Structure
Before
Key Developments:
· Rural
exclusion: Banks mainly served
elite classes and businesses.
· Frequent
failures: Many private banks
collapsed due to poor governance and lack of regulation.
This led to the need for a central regulatory
body, which gave rise to the Reserve Bank of India (RBI) in
1935, under the Reserve Bank of
4. Post-Independence Banking Reforms
After independence, the government focused on
restructuring the banking sector to align with developmental goals.
Focus Areas:
·
Agriculture
financing
·
Industrial
growth
·
Inclusive
banking
More reforms began in 1955 when the Imperial Bank of
5. The 1969 and 1980 nationalization of banks
The 1969 nationalization of 14 large commercial banks by then-prime minister Indira Gandhi is regarded as one of the most important moments in Indian financial history.
Objectives:
· Increase banking
access in rural areas
· Channel credit
into priority sectors like agriculture and small-scale industries
· End the
monopolistic hold of private banks
In 1980, six more banks were nationalized,
taking the total number to 20.
Impact:
·
Massive expansion
of bank branches
·
Increase in rural
credit availability
·
Boost in savings
and deposit mobilization
6. Liberalization and the 1991 Reforms
The economic crisis in 1991 prompted
Major Changes Introduced:
· Entry of new
private sector banks (e.g., HDFC Bank, ICICI Bank)
· Deregulation of
interest rates
· Reduction of
government control over credit allocation
· Increased role of
technology
The Narasimham Committee
played a key role in recommending these changes. Narasimham Committee Summary - PRS India
7. Rise of Private and Digital Banking
Post-1991, several private banks entered the
market and transformed the way banking worked in
Notable Banks:
·
HDFC Bank (1994)
·
ICICI
Bank (1994)
·
Axis Bank (1993 as UTI Bank)
Tech Innovations:
·
ATMs
·
Mobile banking
apps
·
Online fund
transfers (NEFT, RTGS, IMPS)
·
UPI (Unified
Payments Interface) launched by NPCI in 2016 revolutionized digital banking
UPI by NPCI
8. Role of RBI (Reserve Bank of India
The Reserve Bank of India (RBI) plays a
central role in:
·
Regulating banks
·
Issuing currency
·
Maintaining
monetary stability
·
Controlling
inflation
·
Supervising
payment systems
It also acts as the lender of last resort and
the custodian of
9. Current Banking Landscape in India
Today,
·
12 Public
Sector Banks (PSBs)
·
21
Private Sector Banks
·
46
Foreign Banks
·
56
Regional Rural Banks (RRBs)
·
1,500+
Urban Cooperative Banks
·
94,000+
Rural Cooperative Banks
10. Challenges Facing the Indian Banking
Sector
Despite progress, several challenges remain:
·
Non-Performing
Assets (NPAs)
·
Frauds
and cyber threats
·
Financial
illiteracy
·
Under-penetration
in remote rural areas
·
Over-dependence
on government support for PSBs
Reforms are ongoing to address these issues,
such as bank mergers, recapitalization, and stricter RBI oversight.
11. History of banking in India ipleaders
1. Ancient & Medieval Era
· Money-lending
and informal banking date back to Vedic times—†rnapatra* contracts, Shroffs
and Seths
financed trade under Maurya, Gupta, and Mughal empires Quizgecko+8GKToday+8achieversrule.com+8.
· Indigenous
systems like hundi
bills of exchange emerged during medieval periods, and communities such as the
Chettiars and Marwaris played pivotal roles Elite IAS.
2. Colonial Period (Late 18th–Early 20th
Century)
· Bank of
· The
British East India Company established the Presidency Banks:
Bank of Bengal (1806),
· Swadeshi
nationalism (1906–1913) saw the rise of Indian-owned banks: Punjab National
Bank (1895), Allahabad Bank (1865), Bank of India (1906), Central Bank of India
(1911), plus many others Quizgecko+4Jagran Josh+4ibps.iitk.ac.in+4.
· In
1921, the three Presidency Banks merged to form the Imperial Bank of India,
which served quasi-central and commercial functions BYJU'S+7Reddit+7Wikipedia+7.
3. Formation of the RBI (1934–1949)
· The
Hilton Young Commission
recommended a central bank; the Reserve
Bank of India (RBI)
was created under the RBI Act, 1934 and began operations on 1 April 1935
SPLessons+7Wikipedia+7Believers IAS+7.
· Initially
privately held, RBI was nationalised on 1 January 1949 Reddit+6achieversrule.com+6ipleaders6.rssing.com+6.
· The
Banking Regulation Act of 1949
gave RBI broad supervisory and regulatory powers over banking Quizgecko+3Wikipedia+3achieversrule.com+3.
4. Post‑Independence Nationalisation
(1955–1980)
·The
Imperial Bank became the State Bank of
India (SBI)
in 1955, with significant rural and governmental roles Quizgecko+4Believers IAS+4Reddit+4.
·1969 nationalisation:
14 major banks (e.g., PNB, Bank of Baroda) came under government control
Topprs+7Jagran Josh+7ibps.iitk.ac.in+7.
·1980 nationalisation:
Six more banks (e.g., Andhra Bank, Vijaya Bank) were nationalised to extend
rural coverage Jagran Josh.
· In
1975, Regional Rural Banks (RRBs)
were launched to serve agriculture and rural finance needs Quizgecko+3Jagran Josh+3Elite IAS+3.
5. Liberalisation & Reforms
(1991–Present)
·Narasimham Committees
(1991, 1998) pushed for deregulation: interest rate freedom, lower reserve
ratios, allowing new private/foreign banks, stronger norms, NPAs & risk
management improvements Wikipedia+1Quizgecko+1.
· Private
banks such as ICICI, HDFC, Axis,
IndusInd,
etc., emerged; Kotak Mahindra
and Yes Bank
were licensed in 2003–04 Jagran Josh.
·Securitisation
(SARFAESI, 2002), corporate governance,
· Digital transformation:
core banking systems, ATMs, internet & mobile banking; Pradhan Mantri Jan Dhan Yojana,
Aadhaar-linked DBT, payments banks, and fintech initiatives Elite IAS.
Overview Table
|
Era |
Key Developments |
|
Ancient–Medieval |
Indigenous moneylending, hundis, shroffs, chettiars |
|
Colonial (1786–1921) |
Presidency banks; Indian private banks |
|
1921–1935 |
Imperial Bank of |
|
1935–1949 |
RBI founded, nationalised, banking law introduced |
|
1955–1980 |
SBI formation; two waves of nationalisation; RRBs |
|
1991–Present |
Indian private banks, reforms, NPAs, technology, digital
& financial inclusion |
1.Banking in
2.The RBI’s formation in 1935 marked
3.Nationalisation (1955–80) aimed at rural outreach and
financial inclusion.
4.Reforms since 1991 introduced competition,
privatization, regulation, and modernization.
5.Today’s banking is driven by technology, financial
inclusion schemes, and fintech disruption.
12. History of Banking in India
Ancient & Pre-Independence Era
1. Ancient India
·Banking
existed in rudimentary form (money lending by merchants and
moneylenders).
·Concepts of interest,
hundis, and lending were practiced in ancient texts like Manusmriti and Arthashastra.
·Indigenous bankers called Seths, Sahukars, and Chettis were prevalent.
2. Medieval
Period
· Hundis
(bills of exchange) used widely for trade and credit.
· Local financiers supported regional trade and
acted like informal banks.
3. Early
Modern Period
·The British introduced formal banking
institutions.
· 1770:
Bank of Hindustan – First bank in
·1806:
Bank of
· Bank of
These three were called Presidency Banks.
Formation of Imperial Bank & RBI
4. Imperial
Bank of India
·In 1921,
Presidency Banks merged to form the Imperial
Bank of India.
·It performed central banking functions till the
Reserve Bank of
5. Reserve
Bank of India
·Established on April 1, 1935 under RBI Act, 1934.
·Became
·Nationalized
in 1949.
🇮🇳 Post-Independence Era (1947 Onwards)
6. Bank
Nationalization (1969 & 1980)
·In 1969,
14 major private banks were
nationalized (holding 85% of bank deposits).
·In 1980,
6 more banks were nationalized.
·Aimed at expanding banking to rural and
underserved sectors.
List of
14 Banks Nationalized in 1969:
· Allahabad Bank
· Bank of
· Bank of
· Bank of
· Central Bank of
· Canara Bank
· Dena Bank
· Indian Bank
· Indian Overseas Bank
· Punjab National Bank
· Syndicate Bank
· UCO Bank
· Union Bank of
· United Bank of
Banking Reforms & Liberalization (1991
Onwards)
7. Narasimham
Committee Reforms
· Set up in 1991 (Narasimham Committee I) and 1998
(Narasimham II).
· Recommended financial liberalization, NPA control, capital
adequacy norms, and entry of
private banks.
8. New
Private Sector Banks
· After 1993, RBI gave licenses to new private
banks:
o ICICI Bank
o HDFC Bank
o Axis Bank
(earlier UTI Bank)
o IndusInd
Bank
o Yes Bank
Modern Banking Developments
9. Technology
& Digitalization
· Core
Banking Solutions (CBS) implemented.
· Introduction of ATMs, NEFT, RTGS, IMPS, UPI.
· Launch of Digital
India and Jan Dhan Yojana
increased banking penetration.
10. Mergers
& Consolidation (2017–2020)
To make banks stronger, many PSBs were merged:
·2017:
SBI merged with 5 associate banks and Bharatiya Mahila Bank.
· 2020:
o PNB + OBC
+ United Bank
o Union Bank
+ Andhra Bank + Corporation Bank
o Canara
Bank + Syndicate Bank
o Indian
Bank + Allahabad Bank
Important Committees Related to Banking
|
Committee |
Purpose |
|
Narasimham Committee
I (1991) |
Financial sector reforms |
|
Narasimham II (1998) |
Banking structure & asset quality |
|
Verma Committee
(1999) |
Strengthen weak banks |
|
Nachiket Mor
Committee (2013) |
Financial inclusion |
|
P J Nayak Committee
(2014) |
Improve governance of public sector banks |
·First bank
in
·First bank
with Indian ownership: Allahabad Bank (1865)
·Oldest
joint-stock bank: Oudh Commercial Bank (1881)
· RBI
nationalized: 1949
· Banking
Regulation Act passed: 1949
· First bank
nationalization: 1969
· Lead Bank
Scheme: 1969
· RRBs
established: 1975
· Narasimham
Committee: 1991 & 1998
· Banking
Ombudsman introduced: 1995
· Pradhan
Mantri Jan Dhan Yojana launched: 2014
· PSB merger implementation: 2020
13. Conclusion
The journey of Indian banking from informal
systems in ancient times to a modern, digital, regulated industry is both
complex and impressive. From colonial foundations to state-driven reforms and
finally to privatization and digitization,
14. FAQs
Q1. When did modern banking start in India
Modern banking began in
Q2. What is the importance of the 1969
nationalization of banks?
It aimed to make banking accessible to the
rural poor and channel funds into priority sectors, drastically increasing
branch coverage and financial inclusion.
Q3. What role does RBI play in the Indian
banking system?
RBI regulates the entire banking and
financial system, manages inflation, issues currency, and ensures the stability
of the banking sector.
Q4. What is the UPI system in India
Unified Payments Interface (UPI) is a
real-time digital payment system that enables instant money transfers between
bank accounts through mobile apps.
Q5. What are the current challenges in
Indian banking?
Key challenges include NPAs, cybersecurity
threats, financial illiteracy, and lack of access in remote rural areas.
Top 10 Healthy Habits to Maintain Good Health Long-Term