Banking existed in India as early as the Vedic era, . The mention of deposits, the policy of loans, and the rate of interest can be seen in the works of Manu and various other historians. Previously the banking operations were conducted by native bankers. They dominated finance to the extent that they used to provide credit to even the government of those days.
Modern banking emerged in India between the 18th and 19th centuries. Clearly, it started when European agency houses built a structure of European controlled banks with limited liability. In 1720 The first joint-stock bank the Bank of Bombay established. The East India Company built the first bank in India. Subsequently, the Bank of Hindustan in Calcutta, established in the year 1770.
In 1921 Imperial Bank of India have formed by the unification of three presidency banks – the Bank of Bombay, the Bank of Madras, and the Bank of Bengal (the banks established between 1809 and 1843). The primary aim of the Imperial bank was that of a commercial bank, banker’s bank, and a banker to the government of India. Most importantly the Imperial Bank of India eventually became the State Bank of India.
Indian owned banks
The Allahabad Bank set up in Allahabad in 1865 was the first Indian-owned bank. The next bank was the Punjab National Bank which was set up in 1895 in Lahore. In 1906 the Swadeshi Movement started and it encouraged the establishment of more Indian-owned banks. Between 1906 to 1913, many Indian owned banks such as Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up in India.
Earlier in between 1947 and 1969, many banks were under private ownership of the kings of the princely states of India. At that time they restricted their services only to the rich families and industrial houses. To change this the government joined hands with the RBI to form the Banking Companies Act in 1949, which changed as the present Banking Regulation Act. This initiation gave extensive regulatory powers to the Reserve Bank of India.
Reforms and changes in the banking system
The process of reforms and structural adjustments which followed finally led to the reforms,. It also led to non-interference and globalization at the beginning of the twenty-first century. The Narasimhan Committee formed in 1991 brought major changes including a reduction in CRR/SLR. It is to be noted that the asset recovery funds saw improvement. There was a level playing field for all players in the market. Clearly, there was rationalization in-branch licensing.
Most importantly the role of private and foreign banks saw improvement. Furthermore, there was the introduction of prudential norms as per BIS, including norms for capital adequacy, income recognition gained much popularity. In addition to that, there was the classification of assets and provisioning. The Interest rate deregulation, changes in directed cheap credit, and special tribunals for recovery was indeed a reform. The other reforms were the phasing out of concessional directed finance, liberalized capital markets, entry to foreign banks, and foreign holding in native banks,
Banking in India has always a new and different outlook on the financial sector in India. Especially the reforms in the banking sector brought Indian standards to a global level. But still, the Indian banking sector has to go a long way to meet up to their rivalries.
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