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B e g i n n i n g
The English traders that came to India in the 17th century could not make much use of the indigenous bankers, owing to their ignorance of the language as well the inexperience indigenous people of the European trade. Therefore, the English Agency Houses in Calcutta and Bombay began to conduct banking business, besides their commercial business, based on unlimited liability. The Europeans with aptitude of commercial pursuit, who resigned from civil and military, organized these agency houses. A type of business organization recognizable as managing agency took form in a period from 1834 to 1847.The primary concern of these agency houses was trade, but they branched out into banking as a sideline to facilitate the operations of their main business. The English agency houses, that began to serve as bankers to the East India Company had no capital of their own, and depended on deposits for their funds. They financed movements of crops, issued paper money and established joint stock banks. Earliest of these was Hindustan Bank, Established by one of the agency houses in Calcutta in 1770. Banking in India originated in the last decades of the 18th century. The first bank in India, though conservative, was established in 1786 in Calcutta by the name of bank of Bengal. Indian banking system, over the years has gone through various phases. For ease of study and understanding it can be broken into four phases.
Early Phase (1786 to 1935) Banking in India originated in the last decades of the 18thcentury. The first banks were The General Bank of India, which started in 1786, and the Bank of Hindustan, both of which are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The East India Company established Bank of Bengal, Bank of Bombay and Bank of Madras as independent units and called it Presidency Banks. The three banks merged in 1925 to form
the Imperial Bank of India, which, upon India's independence, became the State Bank of India. Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire dEscompte de Paris opened a branch in Calcutta in 1860 and another in Bombay in 1862; branches in Madras and Pondicherry, then a French colony, followed. 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.
Pre Nationalization Phase (1935 to 1969) Organized banking in India is more than two centuries old. Until 1935 all, the banks were in private sector and were set up by individuals and/or industrial houses, which collected deposits from individuals and used them for their own purposes. In the absence of any regulatory framework, these private owners of banks were at liberty to use the funds in any manner, they deemed appropriate and resultantly, the bank failures were frequent. For many years the Presidency banks acted as Quasi-central banks,As did their successors. Bank of Bengal, Bank of Bombay and Bank of Madras merged in 1925 to form the
Imperial Bank Of India, which, upon India's independence, became the State Bank of India. Even though consolidation in banking was building trust among the investors but a central regulatory, authority was much needed. British Government in India passed many trade and commerce laws but acted little on regulating the banking industry. Reserve Bank of India Another breakthrough happened in this phase, which was Reserve Bank of India. The Reserve Bank of India was set up on the recommendations Royal Commission on Indian Currency and Finance 4 Also known as the Hilton-Young Commission. The commission submitted its report in the year 1926, though the bank was not set up for nine years. Reserve Bank of India (RBI) was created with the central task of maintaining monetary stability in India. The Government on December 20, 1934 issued a notification and on January 14, 1935, the RBI came into existence, though it was formally inaugurated only on April 1, 1935. Main functions of RBI were 1. Regulate the issue of banknotes2. Maintain reserves with a view to securing monetary stability and3. To operate the credit and currency system of the country to its advantage The Bank began its operations by taking over from the Government the functions so far being performed by the Controller of Currency and from the Imperial Bank of India. Offices of the Banking Department were established in Calcutta, Bombay, Madras, Delhi and Rangoon. Burma (Myanmar) seceded from the Indian Union in 1937 but the Reserve Bank continued to act as the Central Bank for Burma until Japanese Occupation of Burma and later unto April 1947. After the partition of India, the Reserve Bank served as the central bank of Pakistan up to June 1948 when the State Bank of Pakistan commenced operations.
India Wins Freedom I think the second milestone in history of Indian banking was India becoming a sovereign republic. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a Mixed economy 5 . This resulted into greater involvement of the state in different segments of the economy including banking and finance. The banking sector also witnessed the benefits; Government took major steps in this Indian Banking Sector Reform after independence.
First major step in this direction was nationalized of Reserve Bank in 1949.
Nationalization of Imperial Bank of India in 1955, with extensive banking facilities on a largescale especially in rural and semi-urban areas.
Nationalization of SBI subsidiaries in 1959Government of India took many banking initiatives. These were aimed to provide banking coverage to all section of the society and every sector of the economy. -
1955 The Industrial Credit and Investment Corporation of India Limited (ICICI) Was incorporated at the initiative of World Bank, the Government of India and representatives of Indian industry, with the objective of creating a development financial institution for providing medium-term and long-term project financing to Indian businesses.
Industrial Development Bank of India Limited (IDBI) Was established in 1964 By an Act of Parliament to provide credit and other facilities for the development of the fledgling Indian industry. Some of the institutions built by IDBI are The National Stock Exchange of India (NSE), The National Securities Depository Services Ltd. (NSDL) and the Stock Holding Corporation of India (SHCIL) IDBI BANK, as a private bank after government policy for new generation private banks. This phase of Indian banking was eventful and was a phase of restructuring, regulation. However, despite these provisions, control and regulations, banks in India except the State Bank of India, continued to be owned and operated by private persons.
4. Reduce the hold of moneylenders and make more funds available for agricultural development. Nationalization of bank was to actively involve in poverty alleviation and employment generation programs.