Without a sound and effective banking system in India it cannot have a healthyeconomy.
The
banking system of India should not only be hassle free but it should beable to meet new challenges posed
by the technology and any other external and internalfactors.
For the past three decades India's banking system has several outstandingachievements to its
credit. The most striking is its extensive reach. It is no longerconfined to only metropolitans or
cosmopolitans in India. In fact, Indian banking systemhas reached even to the remote corners of the
country. This is one of the main reasons ofIndia's growth process. The government's regular policy for
Indian bank since 1969 haspaid rich dividends with the nationalization of 14 major private banks of India.
Not long ago, an account holder had to wait for hours at the bank counters forgetting a draft or
for withdrawing his own money. Today, he has a choice. Gone are dayswhen the most efficient bank
transferred money from one branch to other in two days.Now it is simple as instant messaging or dial a
pizza. Money has become the order of theday. The first bank in India, though conservative, was
established in 1786. From 1786 tilltoday, the journey of Indian Banking System can be segregated into
three distinct phases.They are as mentioned below:
•Early phase from 1786 to 1969 of Indian Banks
•Nationalization of Indian Banks and up to 1991 prior to Indian banking sector
Reforms.
•New phase of Indian Banking System with the advent of Indian Financial &
Banking Sector Reforms after 1991
Phase I
The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank.
The East India Company established Bank of Bengal(1809), Bank of Bombay (1840) and Bank of Madras
(1843) as independent units and called it Presidency Banks. These three banks were amalgamated in
1920 and ImperialBank of India was established which started as private shareholders banks, mostly
Europeans shareholders.
In 1865 Allahabad Bank was established and first time exclusively by Indians,Punjab National Bank Ltd.
was set up in 1894 with headquarters at Lahore. Between1906 and 1913, Bank of India, Central Bank of
India, Bank of Baroda, Canara Bank,Indian Bank, and Bank of Mysore were set up. Reserve Bank of
India came in 1935.
During the first phase the growth was very slow and banks also experienced periodic failures between
1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and
activities of commercial banks, the Government of Indiacame up with The Banking Companies Act, 1949
which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of
1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in India as
the Central Banking Authority. During those day’s public has lesser confidence in the banks.As an
aftermath deposit mobilization was slow. Abreast of it the savings bank facilityprovided by the Postal
department was comparatively safer. Moreover, funds were largely given to traders.
Phase II
Government took major steps in this Indian Banking Sector Reform afterindependence. In 1955, it nationalized
Imperial Bank of India with extensive bankingfacilities on a large scale especially in rural and semi-urban areas. It
formed State Bank ofIndia to act as the principal agent of RBI and to handle banking transactions of the Unionand
State Governments all over the country.
Seven banks forming subsidiary of State Bank of India was nationalized in 1960on 19th July, 1969, major process of
nationalization was carried out. It was the effort ofthe then Prime Minister of India, Mrs. Indira Gandhi. 14 major
commercial banks in thecountry were nationalized.
Second phase of nationalization Indian Banking Sector Reform was carried out in1980 with seven more
banks. This step brought 80% of the banking segment in Indiaunder Government ownership. The following are the
steps taken by the Government ofIndia to Regulate Banking Institutions in the Country:
•1949 : Enactment of Banking Regulation Act.
•1955 : Nationalization of State Bank of India.
•1959 : Nationalization of SBI subsidiaries.
•1961 : Insurance cover extended to deposits.
•1969 : Nationalization of 14 major banks.
•1971 : Creation of credit guarantee corporation.
•1975 : Creation of regional rural banks.
•1980 : Nationalization of seven banks with deposits over 200 crore.
After the nationalization of banks, the branches of the public sector bank Indiarose to approximately 800%
in deposits and advances took a huge jump by 11,000%.Banking in the sunshine of Government ownership gave the
public implicit faith andimmense confidence about the sustainability of these institutions.
