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    Banking in India

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    srinivas_vegunta9999
    Banking originated in India in the late 18th century with the establishment of the General Bank of India and Bank of Hindustan. The oldest still existing bank is the State Bank of India, formed in 1806. Banking was heavily influenced by British rule and several major banks were formed during this time. Post-independence, the government nationalized major banks in 1969 and 1980 to better facilitate economic development and credit access. Banking was further liberalized in the 1990s with the establishment of new private banks, increasing competition and growth. Today, India has a strong, mature banking sector serving both rural and urban areas.

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    Banking in India

    Uploaded by

    srinivas_vegunta9999
    115 views6 pages
    Banking originated in India in the late 18th century with the establishment of the General Bank of India and Bank of Hindustan. The oldest still existing bank is the State Bank of India, formed in 1806. Banking was heavily influenced by British rule and several major banks were formed during this time. Post-independence, the government nationalized major banks in 1969 and 1980 to better facilitate economic development and credit access. Banking was further liberalized in the 1990s with the establishment of new private banks, increasing competition and growth. Today, India has a strong, mature banking sector serving both rural and urban areas.

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    Banking originated in India in the late 18th century with the establishment of the General Bank of India and Bank of Hindustan. The oldest still existing bank is the State Bank of India, formed in 1806. Banking was heavily influenced by British rule and several major banks were formed during this time. Post-independence, the government nationalized major banks in 1969 and 1980 to better facilitate economic development and credit access. Banking was further liberalized in the 1990s with the establishment of new private banks, increasing competition and growth. Today, India has a strong, mature banking sector serving both rural and urban areas.

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    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    115 views6 pages

    Banking in India

    Uploaded by

    srinivas_vegunta9999
    Banking originated in India in the late 18th century with the establishment of the General Bank of India and Bank of Hindustan. The oldest still existing bank is the State Bank of India, formed in 1806. Banking was heavily influenced by British rule and several major banks were formed during this time. Post-independence, the government nationalized major banks in 1969 and 1980 to better facilitate economic development and credit access. Banking was further liberalized in the 1990s with the establishment of new private banks, increasing competition and growth. Today, India has a strong, mature banking sector serving both rural and urban areas.

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    Download as DOCX, PDF, TXT or read online from Scribd
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    History of Banking in India

    Banking in India originated in the last decades of the 18th century. 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 three banks merged in 1921 to form the Imperial Bank of
    India, which, upon India's independence, became the State Bank of India .

    History
    Indian merchants in Calcutta established the Union Bank in 1839, but it
    failed in 1848 as a consequence of the economic crisis of 1848-49. The
    Allahabad Bank, established in 1865 and still functioning today, is the
    oldest Joint Stock bank in India.(Joint Stock Bank: A company that issues
    stock and requires shareholders to be held liable for the company's debt) It
    was not the first though. That honor belongs to the Bank of Upper India,
    which was established in 1863, and which survived until 1913, when it
    failed, with some of its assets and liabilities being transferred to the Alliance
    Bank of Simla.
    Foreign banks too started to arrive, particularly in Calcutta, in the 1860s.
    The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860,
    and another in Bombay in 1862; branches in Madras and Puducherry, 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.
    The first entirely Indian joint stock bank was the Oudh Commercial Bank,
    established in 1881 in Faizabad. It failed in 1958.
    The next was the Punjab National Bank, established in Lahore in 1895,
    which has survived to the present and is now one of the largest banks in
    India.

    The period between 1906 and 1911, saw the establishment of banks
    inspired by the Swadeshi movement. The Swadeshi movement inspired
    local businessmen and political figures to found banks of and for the Indian
    community. A number of 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.
    The fervour of Swadeshi movement lead to establishing of many private
    banks in Dakshina Kannada and Udupi district which were unified earlier
    and known by the name South Canara ( South Kanara ) district. Four
    nationalised banks started in this district and also a leading private sector
    bank. Hence undivided Dakshina Kannada district is known as "Cradle of
    Indian Banking".
    During the First World War (1914-1918) through the end of the Second
    World War (1939-1945), and two years thereafter until the independence of
    India were challenging for Indian banking. The years of the First World War
    were turbulent, and it took its toll with banks simply collapsing despite
    theIndian economy gaining indirect boost due to war-related economic
    activities. At least 94 banks in India failed between 1913 and 1918 as
    indicated in the following table:
    Number of
    Year Authorised capital Paid-up Capital
    banks
    s (Rs. Lakhs) (Rs. Lakhs)
    that failed

    1913 12 274 35

    1914 42 710 109

    1915 11 56 5

    1916 13 231 4

    1917 9 76 25

    1918 7 209 1

    Post-Independence
    The partition of India in 1947 adversely impacted the economies
    of Punjaband West Bengal, paralyzing banking activities for months. India's
    independence marked the end of a regime of the Laissez-faire for the
    Indian banking. 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 introduced a mixed
    economy. This resulted into greater involvement of the state in different
    segments of the economy including banking and finance. The major steps
    to regulate banking included:
     The Reserve Bank of India, India's central banking authority, was
    nationalized on January 1, 1949 under the terms of the Reserve Bank
    of India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).
    [Reference www.rbi.org.in]
     In 1949, the Banking Regulation Act was enacted which empowered
    the Reserve Bank of India (RBI) "to regulate, control, and inspect
    the banks in India."
     The Banking Regulation Act also provided that no new bank or
    branch of an existing bank could be opened without a license from
    the RBI, and no two banks could have common directors.
    Nationalisation

    Banks Nationalisation in India: Newspaper Clipping, Times of India, July,


    20, 1969
    Despite the provisions, control and regulations of Reserve Bank of India,
    banks in India except the State Bank of India or SBI, continued to be
    owned and operated by private persons. By the 1960s, the Indian banking
    industry had become an important tool to facilitate the development of
    the Indian economy. At the same time, it had emerged as a large employer,
    and a debate had ensued about the nationalization of the banking
    industry. Indira Gandhi, then Prime Minister of India, expressed the
    intention of the Government of India in the annual conference of the All
    India Congress Meeting in a paper entitled "Stray thoughts on Bank
    Nationalisation." The meeting received the paper with enthusiasm.
    Thereafter, her move was swift and sudden. The Government of India
    issued an ordinance and nationalised the 14 largest commercial banks with
    effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national
    leader of India, described the step as a "masterstroke of political
    sagacity." Within two weeks of the issue of the ordinance,
    the Parliament passed the Banking Companies Bill, and it received
    thepresidential approval on 9 August 1969.
    A second dose of nationalization of 6 more commercial banks followed in
    1980. The stated reason for the nationalization was to give the government
    more control of credit delivery. With the second dose of nationalization, the
    Government of India controlled around 91% of the banking business of
    India. Later on, in the year 1993, the government merged New Bank of
    India with Punjab National Bank. It was the only merger between
    nationalized banks and resulted in the reduction of the number of
    nationalised banks from 20 to 19. After this, until the 1990s, the
    nationalised banks grew at a pace of around 4%, closer to the average
    growth rate of the Indian economy.
    Liberalisation
    In the early 1990s, the then Narsimha Rao government embarked on a
    policy of liberalization, licensing a small number of private banks. These
    came to be known as New Generation tech-savvy banks, and included
    Global Trust Bank (the first of such new generation banks to be set up),
    which later amalgamated with Oriental Bank of Commerce, Axis
    Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move, along
    with the rapid growth in the economy of India, revitalized the banking sector
    in India, which has seen rapid growth with strong contribution from all the
    three sectors of banks, namely, government banks, private banks and
    foreign banks.
    The next stage for the Indian banking has been set up with the proposed
    relaxation in the norms for Foreign Direct Investment, where all Foreign
    Investors in banks may be given voting rights which could exceed the
    present cap of 10%,at present it has gone up to 74% with some
    restrictions.
    The new policy shook the Banking sector in India completely. Bankers, till
    this time, were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go
    home at 4) of functioning. The new wave ushered in a modern outlook and
    tech-savvy methods of working for traditional banks. All this led to the retail
    boom in India. People not just demanded more from their banks but also
    received more.
    Currently banking in India is generally fairly mature in terms of supply,
    product range and reach-even though reach in rural India still remains a
    challenge for the private sector and foreign banks. In terms of quality of
    assets and capital adequacy, Indian banks are considered to have clean,
    strong and transparent balance sheets relative to other banks in
    comparable economies in its region. The Reserve Bank of India is an
    autonomous body, with minimal pressure from the government. The stated
    policy of the Bank on the Indian Rupee is to manage volatility but without
    any fixed exchange rate-and this has mostly been true.
    With the growth in the Indian economy expected to be strong for quite
    some time-especially in its services sector-the demand for banking
    services, especially retail banking, mortgages and investment services are
    expected to be strong. One may also expect M&As, takeovers, and asset
    sales.
    In March 2006, the Reserve Bank of India allowed Warburg Pincus to
    increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%.
    This is the first time an investor has been allowed to hold more than 5% in
    a private sector bank since the RBI announced norms in 2005 that any
    stake exceeding 5% in the private sector banks would need to be vetted by
    them.
    In recent years critics have charged that the non-government owned banks
    are too aggressive in their loan recovery efforts in connection with housing,
    vehicle and personal loans. There are press reports that the banks' loan
    recovery efforts have driven defaulting borrowers to suicide. ]

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