A bank is a financial sector that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Leading activities can be directly performed by the bank or indirectly through capital markets. Because bank plays a vital role in financial stability and the economy of a country, most jurisdictions exercise a high degree of regulation over banks. Banking in India forms the base for the economic development of the country. Major changes in the banking system and management have been seen over the years with the advancement in technology, considering the needs of people.

The Banking sector in India has seen a lot of transitions and changes over the centuries. The history of banking in India can be broadly categorized into 3 sub-parts that are:

1. Pre-Independence (Before 1947)

2. II Phase (1947 to 1991)

3. III Phase (1991 and beyond)

Banks lower transaction costs and act as financial intermediaries as they bring savers and borrowers together. Along with making transactions much safer and easier, banks also play a key role in the creation of money. Banks are critical intermediaries in what is called the payment system, which helps the economy exchange goods and services for money or other financial assets. Candidates can download this history of banking in India PDF via the link below. For any queries, please visit the FAQs listed below. 

Foreign Banks in India

Government Banks in India

History of Banking in India PDF Download Links

Click the below-provided links to download the details of the History of Banking in India 2024. Candidates can make use of these PDFs for their upcoming bank exam preparation.

History Of Banking In India PDF Before Independence

History Of Banking In India PDF - After Nationalisation

History Of Banking In India PDF - Private Banks

History of Banking in India

1. Before Independence (1770 to 1947)

There were quite a few banks established during this time.

• The Banking System in India began with the establishment of the Bank of Hindustan in 1770 but it stopped operating by 1832.
• During this period, over 600 banks were established. However, very few were able to succeed.
• During the British rule in India, The East India Company established three banks and called them the Presidential Banks i.e.,

1. Bank of Bengal
2. Bank of Bombay
3. Bank of Madras

• These three banks were later merged into one single bank in 1921, which was called the “Imperial Bank of India.”
• The Imperial Bank of India was later nationalized in 1955 and was named The State Bank of India, which is currently the largest Public sector Bank.
• Given below is a list of other banks that were established during the Pre-Independence period along with the history of banking in India.

The reasons why many major banks failed to survive during the pre-independence period, the following conclusions can be drawn:

• Indian account holders had become fraud-prone.

• Lack of machines and technology.

• Human errors & are time-consuming.

• Fewer facilities.

• Lack of proper management skills.

First Bank of India

The "Bank of Hindustan," which was founded in 1770 and had its headquarters in Calcutta, the then-capital of India, was the country's first bank. The agent of the Alexander and Company house established the first bank of India. It is currently nonexistent.

2. After Independence (1947 to 1991)

Following the history of banking in India before independence which observed some major changes in the banking industry scenario and has to date developed a lot. Government – after Indian Independence, decided to nationalize the Banks because all the major banks were led privately which was a cause of concern as people in the rural areas still turned to money lenders for assistance.

Nationalisation of Banks in India

Under the Banking Regulation Act, of 1949, the nationalization of banks was done and the Reserve Bank of India was nationalized in 1949. 

About Regional Rural Banks in India

All these banks were later merged with the State Bank of India in 2017, except for the State Bank of Saurashtra, which was merged in 2008.  State Bank of Indore was merged in 2010.

Several reasons for nationalism in the banks of India are:

• Nationalism led to an increase in funds and thereby increased the economic condition of the country. 

• It increased efficiency. 

• It helped in boosting the rural and agricultural sectors of the country. 

• This opened up a major employment opportunity for the people. 

• The profit gained by Banks was used by the Government for the betterment of the people. 

• The competition was decreased and work efficiency increased.

The post-independence phase was the one that led to the major development of the banking sector in India.

3. Liberalization Period (1991 to Till Date)

To provide stability and profitability to the Nationalised Public sector Banks, the Government decided to set up a committee under the leadership of Shri. M Narasimham to manage the various reforms in the Indian banking industry. The biggest development was the introduction of Private sector banks in India. RBI gave licenses to 10 Private sector banks to establish themselves in the country. These banks included:

1. Global Trust Bank

2. ICICI Bank

3. HDFC Bank

4. Axis Bank

5. Bank of Punjab

6. IndusInd Bank

7. Centurion Bank

8. IDBI Bank

9. Times Bank

10.  Development Credit Bank

Indian Banking Structure

The current Indian banking structure has evolved over several decades.

• Indian banking is set up to meet the country's economic demands for credit and financial services.
• Every candidate for a position in banking and finance has to have a thorough awareness of the nation's current financial system both for practical knowledge and test preparation.
• The strength and effectiveness of the Indian banking structure increased dramatically after the financial sector reforms of 1991.
• When compared favorably to the majority of developed nations, India's commercial banking industry is financially strong.
• Let's understand more about the Indian Banking Structure along with the history of banking in India as far as all its related concepts are concerned.
• The following article explores the meaning, concepts, structure, examples, and more shout the existing banking system of the country. 

Development Banks In India

Banking System in India and Their Role

The banking system in India is considered the backbone of a nation's economy.

• The main functions of the commercial banking system include borrowing to lend.
• To receive deposits and advance loans are the two main functions of all commercial banks.
• Other than these there are five other functions of commercial banks and they are acceptance of deposits.
• Banks mainly depend on the funds deposited with them by the public.
• Advancing loans is another function.
• Banks give loans to businessmen and firms usually for short periods only.
• Discounting bills of exchange or undies is another important function.
• Banks transfer money from one place to another for their customers.
• The final properties of the banking system provide miscellaneous functions which include providing a locker, purchasing and selling of stocks, etc.

Components of the Banking System in India

The banking system is made up of the following sectors in India. The components of the banking system are given below.

Reserve Bank of India (RBI)

The Reserve Bank of India (RBI) is the central bank of India. The RBI was originally set up as a private entity in 1935, but it was nationalized in 1949. The main purpose of the RBI is to conduct consolidated supervision of the financial sector in India, which is made up of commercial banks, financial institutions, and non-banking finance firms. The RBI formulates, implements, and monitors India’s monetary policy. The bank’s management objective is to maintain price stability and ensure that credit is flowing to productive economic sectors. The RBI also manages all foreign exchanges under the Foreign Exchange Management Act of 1999.

Scheduled Banks

Scheduled banks are those banks that are listed under Schedule II of the Reserve Bank of India Act, 1934. The bank's paid-up capital and raised funds must be at least Rs. 5 lakh to qualify as a scheduled bank. These banks are liable for low-interest loans from the RBI. They also have membership in clearinghouses. They also have numerous obligations to fulfill such as maintaining an average daily Cash Reserve Ratio with the central bank.

Unscheduled Banks

Non-scheduled banks, by definition, are those that do not adhere to the RBI’s regulations. They are not mentioned in the Second Schedule of the RBI Act, 1934, and are therefore deemed incapable of serving and protecting depositors’ interests. Non-scheduled banks must also meet the cash reserve requirement, not with reserve banks, but with themselves. They are generally smaller in size and have a range of influence that is somewhat narrow. They are risky to do business with due to their financial limitations. The reserve capital of these banks is less than 5 lakh rupees.

Commercial banks

The term commercial bank refers to a financial institution that accepts deposits, offers checking account services, makes various loans, and offers basic financial products like certificates of deposit (CDs) and savings accounts to individuals and small businesses. A commercial bank is where most people do their banking. Commercial banks make money by providing and earning interest from loans such as mortgages, auto loans, business loans, and personal loans. Customer deposits provide banks with the capital to make these loans.

Public Sector Banks

A public bank is a financial institution, in which a state, municipality, or public actors are the owners. It is an enterprise under government control. Public or 'state-owned' banks proliferated globally in the late 19th and early 20th centuries as vital agents of industrialization in capitalist and socialist countries alike; as late as 2012, state banks still owned and controlled up to 25 % of total global banking assets. Proponents of public banking argue that policymakers can create public-sector banks to reduce the costs of government services and infrastructure; protect and aid local banks; offer banking services to people and entities underserved by private-sector banking, and promote particular kinds of economic development reflecting polities’ shared notions of social good. A table of private-sector banks is given below.

Payment Bank of India

Private sector Banks

Private Sector Banks are those banks in which the majority of the stake is held by shareholders of the bank and not by the government. RBL Bank, HDFC Bank, ICICI Bank, Yes Bank, etc. are the private sector banks in India. They provide all the banking products and services to the customers. These products include Fixed Deposits, Savings Deposits, RD, Home Loans, Personal Loans, Car Loan, Locker, Demat Facilities, Debit/ Credit Card, ATM, Foreign Exchange Transactions, Insurance, Wealth Management, Net Banking, etc. Private banks are known for introducing information technology into the banking system.

Foreign Banks

Foreign Banks in India do make a share of 7% in the total Indian Banking Sector, giving a profit of 11% to the Indian economy, and there is only a 1% branch network of Foreign Banks in India, as they are mostly niche players by focusing more on trade finance, wholesale lending, external commercial borrowing, treasury service, and investment banking. These banks are under the regulation of the Reserve Bank of India, as RBI allows either the branch mode or wholly-owned subsidiary, and this Single Mode of Presence Banks are very less in India but manage their customers with good transactions giving good capital as guided by RBI regulations. There are 45 international/foreign banks in India.

Regional Banks

Regional Rural Banks are government-owned scheduled commercial banks of India that operate at the regional level in different states of India. These banks are under the ownership of the Ministry of Finance, Government of India. They were created to serve rural areas with basic banking and financial services. There are a total of 56 regional banks in India.

Co-operative Banks

Co-operative banks are financial entities established on a cooperative basis and belonging to their members. This means that the customers of a cooperative bank are also its owners. These banks provide a wide range of regular banking and financial services. Also, these Cooperative Banks are regulated by the Reserve Bank of India and are governed by the Banking Regulation Act 1949, and Banking Laws Act 1955, and there are a total of 31 Cooperative Banks in India, which are individually under Government Firms to provide service to their employees.

Urban Co-operative Bank

The term Urban Co-operative Banks (UCBs), though not formally defined, refers to primary cooperative banks located in urban and semi-urban areas. These banks, till 1996, were allowed to lend money only for non-agricultural purposes. There are 1,531 urban cooperative banks (UCBs) and 97,006 rural cooperative banks, with the latter making up 65% of the total asset size of all cooperatives taken together.

State Co-operative Bank

The state cooperative bank is a federation of the central cooperative bank and acts as custodian of the cooperative banking structure in the State. Its funds are obtained from the social capital, deposits, loans, and overdrafts of the Reserve Bank of India. So refer to the previous question paper to know the importance of the banking system in India. This article containing the history of banking in India will be useful for candidates to clarify their doubts regarding the banking system in India. Candidates who are willing to apply for the upcoming Government exams must ensure that they have proper notes and sufficient study material to prepare for the exam. The aspirants can history of banking in India PDF and a list of the banking system in India PDF as reference material. Do download the history of banking in India notes pdf for future reference.

Top 10 Indian Bank - As per the largest Market Capitalisation

The top 10 Indian banks by market capitalization for 2024 are shown below. There are 21 private sector banks and 12 public sector banks in India. In addition, the Indian financial system is supported by 45 international banks operating in the private sector.

• HDFC Bank

• State Bank of India

• ICICI Bank

• Axis Bank

• Kotak Mahindra Bank

• IndusInd Bank

• Yes Bank

• Punjab National Bank

• Bank of Baroda

• Bank of India

FAQs

Q. Who is the father of Indian Baking?

Maidavolu Narasimham was an Indian banker who served as the 13th governor of RBI from May 2, 1977, to 30, November 1977. For his contribution, he is referred to as the father of Indian Banking.

Q. Who introduced the Bank in India?

The Banking System in India began with the establishment of the Bank of Hindustan in 1770 but it stopped operating by 1832.

Q. Which is the first private bank in India?

The Nedungadi Bank was the first private sector bank in India, founded in 1899 by Rao Bahadur T.M.Appu Nedungadi in Kozhikode, Kerala.

Q. Which bank introduced ATM in India?

The first ATM in India was set up in 1987 by HSBC in Mumbai.

Q. Bank of India merged with?

Bank of India does not get merged with any other bank.