Scribd
Upload
35 views3 pages

Evolution of Banking & Indigenous Banking

The document discusses the evolution of banking in India, highlighting the distinction between the indigenous banking system and the modern banking system. Indigenous banking, rooted in local practices and trust, faced decline with the advent of British colonial banks, leading to the establishment of a formal banking system post-independence. The modern banking landscape has since evolved through nationalization and the introduction of private sector banks, significantly shaping the current financial environment.

Uploaded by

Siyaa Karkera
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
35 views3 pages

Evolution of Banking & Indigenous Banking

The document discusses the evolution of banking in India, highlighting the distinction between the indigenous banking system and the modern banking system. Indigenous banking, rooted in local practices and trust, faced decline with the advent of British colonial banks, leading to the establishment of a formal banking system post-independence. The modern banking landscape has since evolved through nationalization and the introduction of private sector banks, significantly shaping the current financial environment.

Uploaded by

Siyaa Karkera
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 3

Evolution of banking & indigenous banking

Wednesday, May 28, 2025 10:14 PM

The word Bank has varied etymological roots. Some economists trace it to the German word ‘BANC’, meaning a
joint stock firm. Others suggest it originates from the Italian word ‘BANCO’, which means a heap or mound—
possibly referring to the accumulation of money or securities. This interpretation gained popularity during the
establishment of the Bank of Venice in 1157, when German influence in Italy was significant.

Another theory links the term to the Greek word ‘BANQUE’, meaning a bench. In earlier times, Jewish
moneylenders conducted transactions while seated on benches. If they defaulted on payments, their bench was
broken as a symbol of insolvency—giving rise to the word ‘Bankrupt’ from the same root.

Evolution of banking system :

The Indian Banking System can be divided into two Banking System –
1. An Indigenous Banking System
2. Modern Banking System

Indigenous banking system


Long before the emergence of modern banks introduced by the British, India had a flourishing indigenous banking
system. This system was not regulated by formal laws but was deeply integrated into the socio-economic fabric of
Indian society. It catered to local financial needs through trust-based, community-centric financial practices.
- The indigenous banking system was operated by traditional moneylenders and community bankers, known
by different names across regions such as Shroffs, Seths, Sahukars, Mahajans, Chettis
These individuals or families often ran multi-generational businesses in lending and finance and were highly
trusted within their communities.
Strengths of the Indigenous System
The indigenous banking system was highly localized, tailored to regional needs, and operated on trust rather than
formal contracts. It offered flexible credit terms based on individual circumstances and had a wide presence, even
in remote villages where modern banks were absent.

Limitations
Its major drawbacks included the absence of formal regulation, which led to inconsistent practices and arbitrary
interest rates. Indigenous bankers lacked structured deposit systems and legal enforcement, making transactions
prone to exploitation and informal dispute resolution.

Decline of the Indigenous System


The system declined with the rise of modern banking introduced by the British, beginning with the Bank of
Hindustan in 1770. Colonial banks, backed by legal and institutional support, gradually displaced traditional
systems. Post-independence bank nationalization further reduced their role.

Modern banking system:

Pre Independence Period (1786-1947)


The first bank of India was the “Bank of Hindustan”, established in 1770 and located in the then Indian capital,
Calcutta. However, this bank failed to work and ceased operations in 1832. During the Pre Independence period
over 600 banks had been registered in the country, but only a few managed to survive.
Following the path of Bank of Hindustan, various other banks were established in India.
They were:
• The General Bank of India (1786-1791)
• Oudh Commercial Bank (1881-1958)
• Bank of Bengal (1809)

New Section 3 Page 1


• Bank of Bengal (1809)
• Bank of Bombay (1840)
• Bank of Madras (1843)
During the British rule in India, The East India Company had established three banks: Bank of Bengal, Bank of
Bombay and Bank of Madras and called them the Presidential Banks. These three banks were later merged into
one single bank in 1921, which was called the “Imperial Bank of India.” The Imperial Bank of India was later
nationalised in 1955 and was named The State Bank of India, which is currently the largest Public sector Bank.

Post-Independence Period (1947-1991)


At the time when India got independence, all the major banks of the country were led privately which was a cause
of concern as the people belonging to rural areas were still dependent on money lenders for financial assistance.
With an aim to solve this problem, the then Government decided to nationalise the Banks. These banks were
nationalised under the Banking Regulation Act, 1949. Whereas, the Reserve Bank of India was nationalised in
1949.
Following it was the formation of State Bank of India in 1955 and the other 14 banks were nationalised between
the time duration of 1969 to 1991. These were the banks whose national deposits were more than 50 crores.
Given below is the list of these 14 Banks nationalised in 1969:
1. Allahabad Bank
2. Bank of India
3. Bank of Baroda
4. Bank of Maharashtra
5. Central Bank of India
6. Canara Bank
7. Dena Bank
8. Indian Overseas Bank
9. Indian Bank
10.Punjab National Bank
11.Syndicate Bank
12.Union Bank of India
13.United Bank
14.UCO Bank
In the year 1980, another 6 banks were nationalised, taking the number to 20 banks. These banks included:
1. Andhra Bank
2. Corporation Bank
3. New Bank of India
4. Oriental Bank of Comm.
5. Punjab & Sind Bank
6. Vijaya Bank
Apart from the above mentioned 20 banks, there were seven subsidiaries of SBI which were nationalised in 1959:
1. State Bank of Patiala
2. State Bank of Hyderabad
3. State Bank of Bikaner & Jaipur
4. State Bank of Mysore
5. State Bank of Travancore
6. State Bank of Saurashtra
7. State Bank of Indore

Liberalisation Period (1991-Till Date)


Once the banks were established in the country, regular monitoring and regulations need to be followed to
continue the profits provided by the banking sector. The last phase or the ongoing phase of the banking sector
development plays a hugely significant role.
To provide stability and profitability to the Nationalised Public sector Banks, the Government decided to set up a
committee under the leadership of Shri. M Narasimham to manage the various reforms in the Indian banking
industry. The biggest development was the introduction of Private sector banks in

New Section 3 Page 2


industry. The biggest development was the introduction of Private sector banks in
India. RBI gave license to 10 Private sector banks to establish themselves in the country. These banks included:
1. Global Trust Bank
2. ICICI Bank
3. HDFC Bank
4. Axis Bank
5. Bank of Punjab
6. IndusInd Bank
7. Centurion Bank
8. IDBI Bank
9. Times Bank
10.Development Credit Bank

New Section 3 Page 3

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy