Early Indian Banking History (1786-1991)

Early Phase of Indian Banking (1786-1969)

• First Bank of India, the General Bank of India (Bank of Hindustan & Bengal Bank) established in 1786.
• British East India Company established three Presidency Banks: Bank of Bengal (1809), Bank of Bombay (1840), and Bank of Madras (1843).
• These banks were amalgamated in 1920 to form the Imperial Bank of India.
• Allahabad Bank, established in 1865, was a wholly Indian-owned bank.
• Punjab National Bank (PNB) established in 1894 (headquarters in New Delhi now).
• Banks like Bank of India, Central Bank, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore established between 1906 and 1913.
• Reserve Bank of India (RBI) established in 1935 under the RBI Act of 1934.
• Banking Companies Act (later Banking Regulation Act) of 1949 streamlined commercial banking.

Banking Sector Reforms (1969-1991)

• Imperial Bank of India nationalized in 1955, expanding banking access in rural/semi-urban areas.
• State Bank of India established to handle government banking.
• Seven princely state-owned banks nationalized in 1959 and became State Bank of India subsidiaries.
• Fourteen commercial banks nationalized in 1969.
• Seven more banks were nationalized in 1980, bringing 80% of the Indian banking sector under government ownership.

Banking Sector Reforms (Post-1991)

• Narasimham Committee I (1991): Recognized problems with: direct investment/credit programs, interest rates, banking systems, transparency.
• This phase marked increased liberalization. Foreign banks and ATMs entered India. New technologies (core banking, phone/internet banking) became available.
• Narasimham Committee II (1998): Focused on structural improvements, disclosure standards, and transparency. Examined capital adequacy, mergers/amalgamations, bank legislation review.

Major Recommendations of Narasimham Committees

• Committee I (1991):
  • Lowering CRR and SLR.
  • Capital adequacy norms.
  • Deregulation of interest rates.
  • NPA debt recovery.
  • Asset classification.
  • Access to capital markets.
  • Local area banks.
  • Bank restructuring.
  • Transparency measures.
  • Bank supervision.
  • Competition from private banks.
  • Branch licensing and income recognition.
  • Foreign Bank entry.
• Committee II (1998):
  • New banking sector areas/instruments.
  • Bank ownership models.
  • Risk management.
  • Customer service.
  • Universal/narrow banking.
  • Technology integration.
  • Increased FDI limits.
  • IT development, mergers/amalgamations.
  • Strong anti-money laundering guidelines.
  • Increased credit inflow.
  • Credit bureau establishment

Explore the significant milestones in the development of the Indian banking sector from its inception in 1786 until the reforms of 1991. This quiz covers the establishment of key banks, nationalization efforts, and major banking legislation. Test your knowledge on the evolution and impact of these banking institutions in India.