BANKING SYSTEM IN INDIA:
Banking system occupies an important place in a nation's economy. A banking institution is indispensable in a modem society. It plays a pivotal role in the economic development of a country and forms the core of the money market in an advanced country.
For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process.
The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalisation of 14 major private banks of India.
Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in days. Now it is as simple as instant messaging or dial a pizza. Money have become the order of the day.
The first bank in India, though conservative, was established in 1786. From 1786 till today, 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
• Nationalisation 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.
EARLY PHASE OR 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 alga mated in 1920 and Imperial Bank 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. Between 1906 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 ac¬tivities of commercial banks, the Government of In¬dia came 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 exten¬sive powers for the supervision of banking in India as the Central Banking Authority.
During those days public has-lesser confidence in the banks. As an aftermath deposit mobilisation was slow. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders.
NATIONALISATION OF BANKS OR PHASE II
Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalised Imperial Bank of India with extensive banking facilities on a large scale specially in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Govern¬ments allover the country.
Seven banks forming subsidiary of State Bank of India was nationalised on 19th July, 1959, and thus major process of nationalisation was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi, 14 major commercial banks in the country was nationalised. Second phase of nationalisation of Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership.
The following are the steps taken by the Government of India to regulate Banking Institutions in the Country:
• 1949 : Enactment of Banking Regulation Act.
• 1955 : Nationalisation of State Bank of India.
• 1959 : Nationalisation of S'BI subsidiaries.
• 1961 : Insurance cover extended to deposits.
• 1969 : Nationalisation of 14 major banks.
• 1971 : Creation of credit guarantee corporation.
• 1975 : Creation of regional rural banks.
• I980 : Nationalisation of seven banks with de¬posits over Rs. 200 crore.
After the nationalisation of banks, the branches of the public sector bank of India rose to approximately 800% in deposits and advances took a huge jump by 11,000%.
Banking in the sunshine of Government owner¬ship gave the public implicit faith and immense confidence about the sustainability of these institutions.
During those days public has-lesser confidence in the banks. As an aftermath deposit mobilisation was slow. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders.
NATIONALISATION OF BANKS OR PHASE II
Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalised Imperial Bank of India with extensive banking facilities on a large scale specially in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Govern¬ments allover the country.
Seven banks forming subsidiary of State Bank of India was nationalised on 19th July, 1959, and thus major process of nationalisation was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi, 14 major commercial banks in the country was nationalised. Second phase of nationalisation of Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership.
The following are the steps taken by the Government of India to regulate Banking Institutions in the Country:
• 1949 : Enactment of Banking Regulation Act.
• 1955 : Nationalisation of State Bank of India.
• 1959 : Nationalisation of S'BI subsidiaries.
• 1961 : Insurance cover extended to deposits.
• 1969 : Nationalisation of 14 major banks.
• 1971 : Creation of credit guarantee corporation.
• 1975 : Creation of regional rural banks.
• I980 : Nationalisation of seven banks with de¬posits over Rs. 200 crore.
After the nationalisation of banks, the branches of the public sector bank of India rose to approximately 800% in deposits and advances took a huge jump by 11,000%.
Banking in the sunshine of Government owner¬ship gave the public implicit faith and immense confidence about the sustainability of these institutions.
