EVOLUTION OF BANKING IN INDIA
EVOLUTION OF BANKING IN INDIA:
INTRODUCTION:
The concept of banking was introduced during the period of Mauryan dynasty but not in the same way as they are available in the present generation. It has undergone many changes depending upon the requirements of the people. The first bank had been originated in the last decades of 17th century, the first bank namely the Bank Of Hindustan(1770-1829) and the second namely General Bank Of India(1786). There were three presidency banks namely Bank of Bengal, Bank of Bombay and Bank of Madras which were established under the charters of British East India company. These three banks merged into Imperial Bank Of India in 1921 which upon Independence, became the State Bank Of India in 1955. It acted as the central bank until RBI was set up in 1935.
MAURYAN DYNASTY:
The Mauryan emperors introduced an instrument called 'adesha', an order on the banker asking him to pay certain amount to the 3rd person which corresponds to the bill of exchange in other words. Here the order by the emperors is taken as the security whereas now we introduce a written document as security. This shows us that the banking was existing since a very long time in the Indian history.
COLONIAL PERIOD:
Many banks were established during the British rule in India among which most of them shuttered then itself. Their existence was for a very short period of time. The foreign banks also started appearing in Calcutta during this period, as it was the most active trading port in India then. The first entirely Indian established bank in this period was Oudh Commercial bank in 1881 and the Punjab National Bank is the second Indian established bank which is now one of the largest existing banks in India. Then Indians established many small banks which served small religious communities. Presidency banks dominated banking in India in this period. There were exchange banks(mostly owned by Europeans and focus on foreign trade financing) and joint stock Indian banks(Indian banks which lacked experience to compete presidency and exchange banks). The period between 1901 and 1911 experienced the establishment of many Indian banks because of the inspiration from the swadeshi movement. Many private banks like Bank of India, Corporation bank, Indian Bank Of Baroda, Canara bank and Central Bank of India were established. But the period of first and second world wars was challenging for the Indian banking. At least 94 banks failed during this war period. Banks failed frequently in this period as there was less public trust in banks and the savings bank facility by the postal department seemed to be safer when compared.
POST INDEPENDENCE:
There was a bad impact on the banking sector due to the partition of Bengal, Punjab and many other states after the independence. There came to the end of Laissez faire(transactions between the private parties free from the government). The Industrial policy of India, 1948 introduced a concept of mixed economy giving rise to the greater involvement of the state in different segments including banking and insurance. The government has taken many regulations to improve the banking in India.
REGULATIONS TAKEN BY THE GOVERNMENT:
RBI was set up in 1935 under the recommendations of Hilton Young committee but nationalized in 1949.
The banking regulation act, 1949 empowered RBI to inspect on, check on and regulate all the banks in India.
No new branches of any bank should be established without the license or permission from the RBI and no two banks should have a common director.
RBI was free from the government. The reach of the private and foreign banks from the rural areas remained a challenge during this period. The government constituted the State Bank of India to act as the principle agent of RBI and empowered it to handle the banking transactions of Union government and state governments all over the country.
NATIONALIZATION IN 1960'S:
Banking has emerged into an important tool for development which led to the idea of nationalization of banks. The Indira Gandhi government has issued an ordinance to nationalize 14 biggest banks in India in 1969. The second dose of it led to the nationalization of 6 other banks in order to give the government more control over the banking. With the second nationalization, government has gained 91% of the total control over banking.
1955- SBI was nationalized
1959- SBI subsidiaries were nationalized
1969- 14 major banks were nationalized
1980- another 6 banks were nationalized.
AFTER LIBERALIZATION:
Many new methods were introduced with the invention of sophisticated technology. Phone banking and net banking were introduced. ATM's came up with the technology.Time was given importance in all the transactions leading to such inventions. Foreign Direct Investment(FDI) has been in its roots of origin. FDI was introduced with the investors having 10% of the voting rights but it has gone up to 74% in the present day with some restrictions. The banking structure was divided into two segments namely scheduled banks(come under the second schedule of the RBI act, 1934) and unscheduled banks.
MY PERSPECTIVE:
Banking has proved to be very important in our day to day survival. They tried hard to build up the trust among the public which was lacking during the colonial period. Now people feel safe in depositing their valuables in these banks. RBI is doing a great job in the aspects like controlling inflation, lending rates, controlling and inspecting the banks etc., which is holding our economy. The economic growth is also directly related to the concepts undertaken by RBI. The government should still take efficient steps in order to develop banking further and make our country economically strong.
INTRODUCTION:
The concept of banking was introduced during the period of Mauryan dynasty but not in the same way as they are available in the present generation. It has undergone many changes depending upon the requirements of the people. The first bank had been originated in the last decades of 17th century, the first bank namely the Bank Of Hindustan(1770-1829) and the second namely General Bank Of India(1786). There were three presidency banks namely Bank of Bengal, Bank of Bombay and Bank of Madras which were established under the charters of British East India company. These three banks merged into Imperial Bank Of India in 1921 which upon Independence, became the State Bank Of India in 1955. It acted as the central bank until RBI was set up in 1935.
MAURYAN DYNASTY:
The Mauryan emperors introduced an instrument called 'adesha', an order on the banker asking him to pay certain amount to the 3rd person which corresponds to the bill of exchange in other words. Here the order by the emperors is taken as the security whereas now we introduce a written document as security. This shows us that the banking was existing since a very long time in the Indian history.
COLONIAL PERIOD:
Many banks were established during the British rule in India among which most of them shuttered then itself. Their existence was for a very short period of time. The foreign banks also started appearing in Calcutta during this period, as it was the most active trading port in India then. The first entirely Indian established bank in this period was Oudh Commercial bank in 1881 and the Punjab National Bank is the second Indian established bank which is now one of the largest existing banks in India. Then Indians established many small banks which served small religious communities. Presidency banks dominated banking in India in this period. There were exchange banks(mostly owned by Europeans and focus on foreign trade financing) and joint stock Indian banks(Indian banks which lacked experience to compete presidency and exchange banks). The period between 1901 and 1911 experienced the establishment of many Indian banks because of the inspiration from the swadeshi movement. Many private banks like Bank of India, Corporation bank, Indian Bank Of Baroda, Canara bank and Central Bank of India were established. But the period of first and second world wars was challenging for the Indian banking. At least 94 banks failed during this war period. Banks failed frequently in this period as there was less public trust in banks and the savings bank facility by the postal department seemed to be safer when compared.
POST INDEPENDENCE:
There was a bad impact on the banking sector due to the partition of Bengal, Punjab and many other states after the independence. There came to the end of Laissez faire(transactions between the private parties free from the government). The Industrial policy of India, 1948 introduced a concept of mixed economy giving rise to the greater involvement of the state in different segments including banking and insurance. The government has taken many regulations to improve the banking in India.
REGULATIONS TAKEN BY THE GOVERNMENT:
RBI was set up in 1935 under the recommendations of Hilton Young committee but nationalized in 1949.
The banking regulation act, 1949 empowered RBI to inspect on, check on and regulate all the banks in India.
No new branches of any bank should be established without the license or permission from the RBI and no two banks should have a common director.
RBI was free from the government. The reach of the private and foreign banks from the rural areas remained a challenge during this period. The government constituted the State Bank of India to act as the principle agent of RBI and empowered it to handle the banking transactions of Union government and state governments all over the country.
NATIONALIZATION IN 1960'S:
Banking has emerged into an important tool for development which led to the idea of nationalization of banks. The Indira Gandhi government has issued an ordinance to nationalize 14 biggest banks in India in 1969. The second dose of it led to the nationalization of 6 other banks in order to give the government more control over the banking. With the second nationalization, government has gained 91% of the total control over banking.
1955- SBI was nationalized
1959- SBI subsidiaries were nationalized
1969- 14 major banks were nationalized
1980- another 6 banks were nationalized.
AFTER LIBERALIZATION:
Many new methods were introduced with the invention of sophisticated technology. Phone banking and net banking were introduced. ATM's came up with the technology.Time was given importance in all the transactions leading to such inventions. Foreign Direct Investment(FDI) has been in its roots of origin. FDI was introduced with the investors having 10% of the voting rights but it has gone up to 74% in the present day with some restrictions. The banking structure was divided into two segments namely scheduled banks(come under the second schedule of the RBI act, 1934) and unscheduled banks.
MY PERSPECTIVE:
Banking has proved to be very important in our day to day survival. They tried hard to build up the trust among the public which was lacking during the colonial period. Now people feel safe in depositing their valuables in these banks. RBI is doing a great job in the aspects like controlling inflation, lending rates, controlling and inspecting the banks etc., which is holding our economy. The economic growth is also directly related to the concepts undertaken by RBI. The government should still take efficient steps in order to develop banking further and make our country economically strong.
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