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Evolution of Banking in India

The banking system in India evolved over four phases - pre-independence, post-independence, post-nationalisation, and liberalisation. Key events include the establishment of the State Bank of India in 1955, nationalisation of 14 major banks in 1969 and 6 more in 1980, establishment of regional rural banks in 1975, and liberalisation reforms in 1991 allowing more private sector and foreign banks. The nationalisation phases aimed to increase access to rural credit and priority sector lending.

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Shobhit Shukla
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1K views7 pages

Evolution of Banking in India

The banking system in India evolved over four phases - pre-independence, post-independence, post-nationalisation, and liberalisation. Key events include the establishment of the State Bank of India in 1955, nationalisation of 14 major banks in 1969 and 6 more in 1980, establishment of regional rural banks in 1975, and liberalisation reforms in 1991 allowing more private sector and foreign banks. The nationalisation phases aimed to increase access to rural credit and priority sector lending.

Uploaded by

Shobhit Shukla
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© © All Rights Reserved
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Evolution of Banking

Post- Independence
Pre-Independence
Phase (1947 to till
Phase (1770-1947)
date)

Pre-
Post nationalisation Liberalisation Period
nationalisation Period
Period (1969 to 1991) (1991 to till date)
(1947 to 1969)
Pre-Independence Phase (1770-1947)
 First bank established in India was Bank of Hindostan
(1771-1832)
 Three presidency banks were established under the
charter of the British East India Company in the 19th
Century.
 In 1921, the presidency banks, the Bank of Bengal, the
Bank of Madras and the Bank of Bombay were merged
to form the Imperial Bank of India.
 This bank was renamed as the State Bank of India in
1955 thereby making it the largest as well as oldest bank
in existence.
 In 1935 under the Reserve Bank of India Act, 1934, the
Reserve Bank of India was established as the central
banking Institution but before that presidency banks
played the role of quasi-central banks for many years.
Post- Independence Phase (1947 to till
date)
• At the time independence, the entire Banking sector was under
private ownership. The rural population of the country was
dependent on small money lenders for their requirements. To solve
these issues and better development of the economy the
Government of India nationalised the Reserve Bank of India in
1949.
 In 1960 under the State Bank of India (Subsidiary Banks) Act, 1959
the SBI was given eight state-associated bank’s control and was
named as associate banks.
 A number of private banks like HDFC Bank, ICICI Bank etc. were
licensed by the Indian government in early 1990 and these banks
were known as New Generation tech-savvy banks. This helped in
Indian economy’s rapid growth as three sectors of banks, foreign
banks, private banks and government banks had a great
contribution.
Nationalisation
• In 1969, Government of India nationalised 14
major banks whose national deposits were
more than 50 crores.
• Six more banks further nationalised in the
year 1980. With the second wave of
nationalisation, the target of priority sector
lending was also raised to 40%.
Post nationalisation Period (1969 to
1991)
• The Indian Banking system immensely developed
after nationalisation but the rural and weaker
section of the society was still not covered under
the system.
• To solve these issues,
the Narasimham Committee in 1974
recommended the establishment of Regional
Rural Banks (RRB). On 2nd October
1975, RRBs were established with an objective to
extend the amount of credit to the rural section
of the society.
Liberalisation Period (1991 to till date)

• In order to improve financial stability and profitability of


Public Sector Banks, the Government of India set up a
committee under the chairmanship of Shri.
M. Narasimham. The committee recommended several
measures to reform banking system in the country.
• make banks competitive and strong and conducive to the
stability of the financial system.
• no more nationalisation of banks.
• Foreign banks would be allowed to open offices in India
either as branches or as subsidiaries.
• public sector banks and private sector banks should
be treated equally by the Government and RBI.
Objectives of Nationalisation of banks
• Removal of control by a few
• Provision of adequate credit for agriculture,
small industry and exports
• Professional bent to bank management
• Encouragement of new class of entrepreneurs
• Provision of adequate training and reasonable
terms of service for bank staff

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