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The Evolution of Banking in India

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The Evolution of Banking in India

The banking system of our country is divided into commercial banks (public banks & private banks), cooperative banks, regional rural banks, etc. One of the key reasons that brought-up the evolution of the Indian banking sector is the ‘Nationalization of Banks’. Let’s get going with the history of banking. Here: 

PHASE 1: The Pre-Independence Phase, i.e., before 1947 

In this era, the banking system was started with the foundation of ‘Bank of Hindustan’, Calcutta in 1770. But the bank ended its operations in 1832. Post to this, many other banks evolved like the General Bank of India (1786-1791), Oudh Commercial Bank (1881-1958), unfortunately, they couldn’t continue their operations. Not to miss, Oudh Commercial Bank was the 1st commercial bank of India. Banks of the 19th century are still operating, like: Allahabad Bank (established in 1865), Punjab National Bank (established in 1894). Other banks – Bank of Bombay (established in 1840), Bank of Bengal (established in 1806), Bank of Madras (established in 1843) were all merged into one entity. Also, the new bank body known as Imperial Bank of India was later renamed as ‘State Bank of India’.  

In the year 1935, the Reserve Bank of India (RBI) was commissioned with the recommendation of the Hilton Young Commission.  

This phase was failure because the confidence of the public was quite low & people were majorly engaged with unorganized players and money lenders.  

PHASE 2: After Independence Phase – period  from 1947 to 1991 

NATIONALIZATION was the period in this phase.  

in the year 1949, the Reserve Bank of India (RBI) was nationalized. In two decades, fourteen commercial banks were nationalized in July 1969 during the reign of Indira Gandhi. 

In the year 1975, (based on the recommendation of the Narasimham committee) Regional Rural Banks (RRBs) were constituted with the motive of serving the unserved. The primary goal was to reach masses & promote financial inclusion. 

Other banks were also setup to just to promote the activities that were required for the economy. 

For example,  

  • NABARD was established in the year 1982 to support agriculture-related work.  
  • EXIM bank was built in the year 1982 for export & import. 
  • National Housing Bank was set up in the year 1988 for the Housing sector, and  
  • SIDBI was established in 1990 for Small-scale industries. 

PHASE 3: The LPG (1991) Era & more 

The 1991 year gave a remarkable change in the Indian economy.  

The government opened the economy and invited foreign as well as private investors to invest in India. This move made the entry of private players in the banking sector. 

Also, the RBI provided banking license to 10 private entities out of which the notable ones survived such as  

  • ICICI,  
  • HDFC,  
  • Axis Bank,  
  • IndusInd Bank, and  
  • DCB 

In the year 1998, the Narsimham committee again recommended the entry of private players. The RBI provided a license to Kotak Mahindra Bank in the year 2001 and Yes Bank in the year 2004. 

After a certain period, the third round of licensing took place. The RBI in 2013-14, allowed a license for: 

  • IDFC bank and  
  • Bandhan Bank. 

The story is still ongoing, with an aim to make sure that every Indian gets access to finance, the RBI introduced 2 new set of banks –  

  • Payments bank and  
  • Small banks, thus, marking the fourth phase in the banking industry.  

With these growing steps, the banking sector will grow further.  

 

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