CHAPTER-1

INDIAN BANKING HISTORY

Banking history of India is divided into two major categories –

• Pre-Independence Banking History
• Post-Independence Banking History

Pre-Independence Banking History

•  The origin of modern Banking in India dates back to the 18th century. Banking Concept in India was brought by Europeans.
•  Bank of Hindustan was established in 1770 and it was the first bank at Calcutta under European management.

• Note: It was liquidated during the period of 1829-32.

•  General Bank of India was established in 1786 but failed in 1791.
•  On June 2, 1806 the Bank of Calcutta was established in Calcutta. It was the first Presidency Bank during the British Raj.

• Note: On January 2, 1809 the Bank of Calcutta renamed as the Bank of Bengal.

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•  On 15th April, 1840 the second presidency Bank, Bank of Bombay was established in Bombay.
•  On 1 July 1843 the Bank of Madras was established in Madras, now Chennai. It was the third Presidency Bank during the British Raj.

These Presidency banks worked as quasi central banks in India for many years under British Rule.

•  Allahabad Bank was established in 1865 and working even today. It is the oldest Joint Stock bank in India but it was not the first thought. That honour belongs to the Bank of Upper India, which was established in 1863 but this bank became defunct in 1913.

• Note : Allahabad Bank is the oldest Public Sector Bank in India having branches all over India and serving the customers for the last 145 years.

• The Comptoire d’Escompte de Paris opened a branch in Calcutta in 1860.
•  HSBC established itself in Bengal in 1869.

Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center.

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•  In 1881, Oudh Commercial Bank was established at Faizabad. It was the first bank of limited liability managed by Indians. After Independence, in 1958 this bank failed.
•  In 1895 Punjab National Bank was established in Lahore in Punjab province of Undivided India. It was the first bank purely managed by Indian.
•  The first Indian commercial bank which was wholly owned and managed by Indians was Central Bank of India which was established in 1911.

• Note : Central bank of India was also called India’s First Truly Swadeshi bank.

The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community.  The period between 1906 and 1911 thousands of Banks were established in India. Many of those banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.

•  At least 94 banks in India failed between 1913 and 1918 due to economic crisis during World War I.
•  On 27th January, 1921 Bank of Calcutta, Bank of Madras and Bank of Bombay were amalgamated to form Imperial Bank of India.
•  In 1926 Hilton-Young Commission submitted it’s report.
• In 1934 Reserve Bank of India act was passed.
• On the recommendation of Hilton-Young Commission, on 1st April 1935 Reserve Bank of India was established.

Post-Independence Banking History

• Immediately after the Independence, the partition of India in 1947 adversely impacted the economies of Punjab and West Bengal by paralyzing banking activities for months. With end of British rule in India marked the end of a regime of the Laissez-faire for the Indian banking sector.
• To streamline the functioning and activities of commercial banks the Banking Companies Act was passed in February 1949, which was subsequently amended to read as Banking Regulation Act, 1949. This Act provided the legal framework for regulation of the banking system by RBI.             The Reserve Bank of India was vested with major powers for the supervision of banking in India as the central banking authority.
• With a view to bring commercial banks into the mainstream of economic development with definite social obligations and objectives, the

government decided to nationalize 14 major commercial banks on 19th July, 1969.

The names of these banks are as under :

1. The Allahabad Bank
2. The Bank of Baroda
3. The Bank of India
4. The Bank of Maharashtra
5. The Canara Bank
6. The Central Bank of India
7. The Dena Bank
8. The Indian Bank
9. The Indian Overseas Bank
10. The Punjab National Bank
11. The Syndicate Bank
12. The Union Bank of India
13. The United Bank of India
14. The United Commercial Bank

• As a result of nationalization, 85 percent of the banking business in terms of deposits was brought under public control. On 15th April 1980, 6 more private sector commercial banks (with deposits of over Rs. 200 crores) were nationalized.

The names of these banks are as under :

1. The Andhra Bank
2. The Corporation Bank
3. The New Bank of India (merged with Punjab National Bank in 1993)
4. The Oriental Bank of Commerce
5. The Punjab and SIndh Bank
6. The Vijaya Bank

Thus, 20 private sector commercial banks were nationalized and over 90 percent of banking activity in the country was brought under the public sector and it brought down the inequalities of income and wealth and to ensure greater social justice.

• Based on the recommendations of Narasimhan Committee (1975) report, the Govt. of India began to establish a number of Regional Rural Banks (RRB's) from October 1975 and onwards.
• In the year 1985, the name of United Commercial Bank was changed as UCO Bank.

• On 19th November 2013 on the occasion of the 94th birth anniversary of former Indian Prime Minister Indira Gandhi, the First women Bank of India "Bharatiya Mahila Bank" was established.

Practice Exercise

        Q.1. Which of the following is the oldest Public Sector Bank in India, still                   working today?

        (1) Allahabad Bank

        (2) State Bank of India

        (3) Punjab National Bank

        (4) Imperial Bank of India

        (5) Bank of Hindustan

        Q.2. In which year Bank of Hindustan was established?

        (1) 1770

(2) 1882

(3) 1885

(4) 1796

(5) 1885

Q.3. Which of the following was the first Presidency Bank during the British Raj?

(1) Bank of Bengal

(2) Bank of Bombay

(3) Bank of Calcutta

(4) Bank of Madras

(5) None of these

Q.4. RBI was nationalised on-

(1) 1 July 1949        

(2) 26 Jan 1951        

(3) 1 April 1935        

(4) 1 July 1955        

(5) 1 Jan 1949

        Q.5. The 14 major banks in the country were nationalized in the year-

        (1) 1955

(2) 1947

(3) 1967

(4) 1970

(5) 1969

Q.6. Name the first women bank of India?

(1) Bharatiya Mahila Bank

(2) Indian Women Bank

(3) State Bank of India

(4) Punjab National Bank

(5) None of these

Answers with Explanation

Q.1. (1) Allahabad Bank was established in 1865 and working even today. It is the oldest Public Sector Bank in India.

Q.2. (1) Bank of Hindustan was established in 1770 and it was the first bank at Calcutta under European management.

Q.3. (3) On June 2, 1806 the Bank of Calcutta was established in Calcutta. It was the first Presidency Bank during the British Raj.

Q.4. (3) On the recommendation of Hilton-Young Commission, on 1st April 1935 Reserve Bank of India was established.

Q.5. (5) The government nationalized 14 major commercial banks on 19th July, 1969.

Q.6. (1) On 19th November 2013 the first women bank of India "Bharatiya Mahila Bank" was established.

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