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 Bank of Hindustan, which started in 1770; both 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 in 1955.

History
Merchants in Calcutta established the Union Bank in 1839, but it failed in 1840 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 app, particularly in Calcutta, in the 1860s. The Comptoir d'Escompte 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. 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. Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities. The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally under capitalized and

lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments." 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 (19141918) through the end of the Second World War (19391945), 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 the Indian economy gaining indirect boost due to warrelated economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in the following table:

Post-Independence

The partition of India in 1947 adversely impacted the economies of Punjab and 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 envisaged 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 established in April 1934, but was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).[1] 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
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."[2] The meeting received the paper with enthusiasm. Thereafter, her move was swift and sudden. The Government of India issued an ordinance ('Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969')) and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. These banks contained 85 percent of bank deposits in the country.[2] 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 (Acquisition and Transfer of Undertaking) Bill, and it received the presidential 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 Narasimha 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, UTI Bank (since renamed Axis 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 (2010), 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 timeespecially 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.

History
The roots of the State Bank of India lie in the first decade of 19th century, when the Bank of Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806. The Bank of Bengal was one of three Presidency banks, the other two being the Bank of Bombay (incorporated on 15 April 1840) and the Bank of Madras (incorporated on 1 July 1843). All three Presidency banks were incorporated as joint stock companies and were the result of the royal charters. These three banks received the exclusive right to issue paper currency in 1861 with the Paper Currency Act, a right they retained until the formation of the Reserve Bank of India. The Presidency banks amalgamated on 27 January 1921, and the reorganized banking entity took as its name Imperial Bank of India. The Imperial Bank of India remained a joint stock company. Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank of India, which is India's central bank, acquired a controlling interest in the Imperial Bank of India. On 30 April 1955, the Imperial Bank of India became the State Bank of India. The government of India recently acquired the Reserve Bank of India's stake in SBI so as to remove any conflict of interest because the RBI is the country's banking regulatory authority. In 1959, the government passed the State Bank of India (Subsidiary Banks) Act, which made eight state banks associates of SBI. A process of consolidation began on 13 September 2008, when the State Bank of Saurashtra merged with SBI. SBI has acquired local banks in rescues. The first was the Bank of Behar (est. 1911), which SBI acquired in 1969, together with its 28 branches. The next year SBI acquired National Bank of Lahore (est. 1942), which had 24 branches. Five years later, in 1975, SBI acquired Krishnaram Baldeo Bank, which had been established in 1916 in Gwalior State, under the patronage of Maharaja Madho Rao Scindia. The bank had been the Dukan Pichadi, a small moneylender, owned by the Maharaja. The new banks first manager was Jall N. Broacha, a Parsi. In 1985, SBI acquired the Bank of Cochin in Kerala, which had 120 branches. SBI was the acquirer as its affiliate, the State Bank of Travancore, already had an extensive network in Kerala.

INDIA
In ancient India there is evidence of loans from the Vedic period (beginning 1750 BC).[81][82] Later during the Maurya dynasty (321 to 185 BC), an instrument called adesha was in use, which was an order on a banker desiring him to pay the money of the note to a third person, which corresponds to the definition of a bill of exchange as we understand it today. During the Buddhist period, there was considerable use of these instruments. Merchants in large towns gave letters of credit to one another.[83]

All India Financial Institutions

All India Financial Institutions (AIFI) is a group composed of Development Finance Institutions (DFI) and Investment Institutions that play a pivotal role in the financial markets. Also known as "financial instruments", the financial institutions assist in the proper allocation of resources, sourcing from businesses that have a surplus and distributing to others who have deficits - this also assists with ensuring the continued circulation of money in the economy. Possibly of greatest significance, the financial institutions act as an intermediary between borrowers and final lenders, providing safety and liquidity. This process subsequently ensures earnings on the investments and savings involved[citation needed]. In Post-Independence India, people were encouraged to increase savings, a tactic intended to provide funds for investment by the Indian government. However, there was a huge gap between the supply of savings and demand for the investment opportunities in the country[citation

List of AIFIs

Industrial Development Bank of India (IDBI) Industrial Finance Corporation of India (IFCI) Export - Import Bank of India (Exim Bank) Industrial Reconstruction Bank of India (IRBI) now (Industrial Investment Bank of India) National Bank for Agriculture and Rural Development (NABARD) Small Industries Development Bank of India (SIDBI) National Housing Bank (NHB) Unit Trust of India (UTI) Life Insurance Corporation of India (LIC) General Insurance Corporation of India (GIC) Risk Capital and Technology Finance Corporation Limited. (RCTC) Technology Development and Information Company of India Ltd.(TDICI) Tourism Finance Corporation of India Ltd. (TFCI) Shipping Credit and Investment Company of India Ltd. (SCICI) Discount and Finance House of India Ltd. (DFHI)

Industrial Development Bank of India

The IDBI was established to provide credit for major financial facilities to assist with the industrial development of India. It was established in 1964 by RBI, and was transferred to the government of India in 1976. The government holdings in IDBI, after the IPO, is 51.4%.[1] By the end of September 2004, the IDBI asset base was Rs. 36850 crore.[2]

Functions

Direct assistance: helps the industrial sector by granting project loans, underwriting of and direct subscription to the industrial securities (shares and debentures), soft loans, and technical development funds. Coordinating functions: coordinates the functions of financial institutions such as ICICI, IFCI, LIC and GIC, with respect to industrial development.[3] Indirect assistance to small and medium enterprises by granting loans. It also refinances industrial loans of the SFC's, SIDCs, commercial banks and RRBs, along with the billing related to the sale of the indigenous machinery. Raising funds from the international money markets.

Diversification of Activities of IDBI

Since 1990, IDBI has set up number of institutes, including:

Small Industries Development Bank of India SIDBI)in 1990.[4] IDBI Investment Management Company (IIMCO)in 1994.[5] IDBI Capital Market Servives Ltd. (ICMS)[6] in 1995. IDBI bank Ltd.

State Industrial Development Corporations

In 1960, the first State Industrial Development Corporations (SIDC)[7] was established in Bihar. These mainly autonomous bodies are controlled by the State government, who may own a stake in the corporation. There are approximately 28 SIDCs in India. Their main functions include the promotion of rapid industrialization in India. They mainly work at the grass roots level, providing development in the backward and less frequented parts of India. They offer financial leases and offer guarantees. They also administer the schemes of the central and state governments. The projects and surveys of the industrial potential ares are conducted by them, as well as the evaluation of SEZs.

Mutual Funds
The first Mutual funds in India were created in 1964[8] by the UTI or The Unit Trust of India. In 1987, the leading public sector banks of the country, such as SBI and Canara Bank, set up their mutual funds. It became popular after the 1991 liberalization of the Indian Economy. By the end of 2006, there were around 200 mutual funds schemes in India. The amount of assets that are managed by the mutual funds grew from Rs. 47,000 Crores to Rs. 217,707[9] by 31 March 2006. The mutual funds are managed by fund managers for small investors, who often does not have enough information to adequately invest there funds.

Organizations Of The Mutual Funds Companies In India

The mutual funds in India has 5 constituents :

The Sponsors The board of trustees or the Trust. The Asset Management Company The custodian The unit holders.

BANKS AND FINANCIAL INSTITUTIONS IN INDIA

Co-operative Banks Financial Institutions Foreign Banks Lending/Interest Rate Nationalised Banks Post Office Saving Banks Private Banks Public Sector Banks Regional Rural Banks Reserve Bank of India Scheduled Commercial Banks Small Savings

financial institutions in India

are as follows:

Unit Trust of India (UTI) Securities Trading Corporation of India Ltd. (STCI) Industrial Development Bank of India (IDBI) Industrial Reconstruction Bank of India (IRBI), now (Industrial Investment Bank of India) Export - Import Bank of India (EXIM Bank) Small Industries Development Bank of India (SIDBI) National Bank for Agriculture and Rural Development (NABARD) Life Insurance Corporation of India (LIC) General Insurance Corporation of India (GIC) Shipping Credit and Investment Company of India Ltd. (SCICI) Housing and Urban Development Corporation Ltd. (HUDCO) National Housing Bank (NHB)