Indian Banking History Quiz

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

Which bank played a significant role in the early development of banking in India and was established by European traders?

Bank of Hindustan

Madras Bank (correct)

Bank of Calcutta

Imperial Bank of India

Which year did the British Government of India gain a monopoly on issuing paper notes in India?

1921

1770

1861 (correct)

1832

Which of these banks were part of the Presidency Banks established by the East India Company?

Punjab National Bank

Bank of Madras (correct)

Central Bank of India

Bank of Baroda

Which year did the three Presidency Banks merge into the Imperial Bank of India?

1921 (B) Signup and view all the answers

Which of the following banks was NOT established during the pre-independence period in India?

State Bank of India (A) Signup and view all the answers

What was a major reason for commercial banks primarily serving the needs of wealthy industrialists in the post-independence era?

Close ties between banks and industrial houses (B) Signup and view all the answers

Which of these banks is known for being the oldest still running joint-stock bank in India?

Allahabad Bank (C) Signup and view all the answers

Which of these institutions issued the first paper notes in India?

The Bank of Hindustan (D) Signup and view all the answers

What was a primary purpose of the Narasimham Committee I?

To study and recommend improvements to the financial system (C) Signup and view all the answers

Which action did the Narasimham Committee I recommend regarding CRR and SLR?

Reduce both CRR and SLR significantly (A) Signup and view all the answers

What did the Narasimham Committee I advocate for concerning interest rates?

Deregulation and market determination of interest rates (A) Signup and view all the answers

Which was one of the Committee's recommendations regarding directed credit programs?

Discontinue directed credit programs altogether (D) Signup and view all the answers

What organizational change in the banking sector did the Narasimham Committee I propose?

Merger of public sector banks to enhance efficiency (A) Signup and view all the answers

Which fund was proposed by the Narasimham Committee I to assist banks with bad debts?

Assets Reconstruction Fund (C) Signup and view all the answers

What was established in 1993 as a result of the recommendations of the Narasimham Committee I?

Debt Recovery Tribunal (A) Signup and view all the answers

In what year was the Narasimham Committee I appointed?

1991 (D) Signup and view all the answers

What was one of the main reasons for the nationalization of banks in India during the 1980s?

To give the government more control over credit delivery. (B) Signup and view all the answers

Which bank was not nationalized in 1980 as per the provided information?

Bank of Baroda (A) Signup and view all the answers

What major economic issue contributed to the 1991 Indian economic crisis?

A balance of payments deficit due to imports. (C) Signup and view all the answers

What condition was stipulated by the World Bank and IMF for India in order to receive assistance during the 1991 crisis?

To open up the economy to foreign participation. (B) Signup and view all the answers

What was a significant concern regarding public sector banks after their nationalization?

Poor performance and rising non-performing assets. (A) Signup and view all the answers

Which factor was NOT mentioned as contributing to the decline in India's forex reserves during the 1991 crisis?

Increased exports of Indian goods. (D) Signup and view all the answers

What was one outcome of the banking reforms initiated in 1991?

Enhanced productivity, efficiency, and profitability in the banking sector. (D) Signup and view all the answers

Which of the following banks was known as New Bank of India before its nationalization?

Punjab National Bank (C) Signup and view all the answers

Which committee was formed by the RBI to examine the role and operations of Development Financial Institutions (DFIs)?

Khan Committee (C) Signup and view all the answers

What was the primary focus of the Tandon Committee's recommendations?

Shifting from a security-based to a need-based approach to bank credit (C) Signup and view all the answers

What was the main reason for the Tandon Committee's formation in 1974?

To establish guidelines for commercial banks to ensure proper utilization of credit and address the priority sector (A) Signup and view all the answers

Which committee advocated for the adoption of an 'Area Approach' to develop banking and credit structures in rural areas?

Gadgil Study Group (C) Signup and view all the answers

What was the Committee's recommendation concerning the role of the Reserve Bank of India (RBI)?

The Committee proposed a separation of the RBI's regulatory and ownership roles to avoid potential conflicts of interest. (A) Signup and view all the answers

Which of the following recommendations was NOT made by the Khan Committee?

Phasing out SLR and reducing CRR to international standards (D) Signup and view all the answers

How many large banks did the Committee recommend the banking system should consist of?

3 or 4 large banks (D) Signup and view all the answers

What specific measure did the Committee recommend to address the issue of Non-Performing Assets (NPAs)?

The Committee proposed the establishment of Asset Reconstruction Funds to absorb bad debts from banks. (A) Signup and view all the answers

What was the primary objective of the Lead Bank Scheme (LBS) launched by the RBI?

To increase lending to weaker sections of the economy in rural areas (B) Signup and view all the answers

What was the Committee's target for the capital adequacy ratio (CAR) by 2002?

10% (D) Signup and view all the answers

What was one of the reasons for the recommendation of greater autonomy for public sector banks?

To help them function with professionalism like international counterparts (B) Signup and view all the answers

What was the main objective of the Tandon Committee, formed in 1974?

To ensure proper utilization of bank credit and address the priority sector. (B) Signup and view all the answers

What dual control did the Committee aim to eliminate in the banking system?

Control by RBI and Banking Division of Ministry of Finance (D) Signup and view all the answers

Which of the following companies was granted a new bank license based on the recommendations of the Bimal Jalan Committee?

Bandhan Bank (D) Signup and view all the answers

What was the main purpose of the Nariman Committee, formed by the RBI in 1969?

To endorse the 'Area Approach' for rural banking development (A) Signup and view all the answers

What did the Committee propose regarding the nationalization of banks?

No further nationalization of banks should take place (C) Signup and view all the answers

What was the Committee's recommendation regarding the minimum start-up capital required for foreign banks seeking to operate in India?

The Committee proposed a minimum start-up capital of $25 million for foreign banks in India. (B) Signup and view all the answers

What was a key recommendation regarding 'narrow banking'?

Permit banks to place funds in short-term, risk-free assets (A) Signup and view all the answers

Which of the following aspects was NOT a key focus of the Bimal Jalan Committee's investigation into new bank license applications?

The impact of bank credit on the economy (D) Signup and view all the answers

Which of the following was a recommendation made by the Committee regarding Non-Performing Assets (NPAs)?

The Committee recommended that all Indian banks with international presence should strive for 'zero' NPAs. (C) Signup and view all the answers

What was one of the proposed features of the evolved banking system?

Greater emphasis on internal audit and inspection systems (A) Signup and view all the answers

Which of the following is NOT a recommendation made by the Committee?

The government should encourage banks to take over the bad debts of other banks. (A) Signup and view all the answers

According to the Committee's recommendations, what should happen to weaker banks?

They should be closed down if unable to revitalize (C) Signup and view all the answers

What did the Committee emphasize as a basis for bank supervision?

Evolved prudential norms and regulations (A) Signup and view all the answers

Study Notes

1.0 Introduction

Indian banking history dates back to the 17th century, with the Madras Bank founded in 1683.
Primarily managed by European traders working with the East India Company.

2.0 Evolution

2.1 Phase I: Pre-Independence (Before 1947)

2.1.1 Bank of Hindustan

Modern Indian banking originated in the mid-18th century.
The Bank of Hindustan was one of the first banks, established in 1770.
First paper notes were issued by private banks like the Bank of Hindustan in the late 18th century.
Bank of Hindustan was liquidated in 1832.

2.1.2 Imperial Bank of India

The East India Company established three Presidency Banks during British rule:
- Bank of Calcutta (1806)
- Bank of Bombay (1840)
- Bank of Madras (1843)
These banks were reorganized and amalgamated into the Imperial Bank of India on January 27, 1921.
The Imperial Bank of India was nationalized on July 1, 1955, transforming into the State Bank of India.

2.1.3 Other Pre-Independence Banks

Oudh Commercial Bank (1881): First commercial bank in India.
Allahabad Bank (1865): Oldest continuously operating joint-stock bank in India until 2020 merger.
Punjab National Bank (1894): Second-largest government-owned bank.
Bank of India (1906)
Bank of Baroda (1908)
Central Bank of India (1911)
Reserve Bank of India (1935)

2.2 Phase II: Post-Independence (1947-1990)

2.2.1 Pre-Nationalization Phase (1947-1968)

After independence, commercial bank presence was limited in urban and industrial areas.
Banks primarily focused on the needs of the rich and industrial class.
Nexus existed between banks and industrial houses.
Bank boards, predominantly composed of industrialists, held decision-making power and influenced policies.
Policies favored business houses, impacting everyday administration and banking for the poor.

2.2.2 Nationalization of Banks (1969-1990)

Twelve major private banks were nationalized in 1969.
The aim was to increase government control over the banking sector.
Nationalization was linked to industrial houses' influence over banks.
1980 saw another round of nationalization involving six more commercial banks, with control over credit delivery as the stated reason.

2.3 Phase III: Liberalization (1991-Present)

2.3.1 Problems in the Indian Banking System

Government-controlled banks experienced poor performance.
Non-performing assets (NPAs) significantly threatened the financial system's stability.
Banking reforms were integrated into the liberalization process.
Reforms aimed at improving the flexibility of banking operations, enhancing productivity, efficiency, and profitability.

2.3.2 Indian Economic Crisis (1991)

The 1991 crisis originated from a balance of payments deficit, heavily reliant on imports.
Global events, like the 1990-91 Gulf War and a fall in remittances, exacerbated the crisis.

2.3.3 Narasimham Committee I (1991)

The purpose of the committee was to study financial systems and suggest improvements.
Recommendations included reducing CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio) to streamline operations.
They suggested deregulation of interest rates to align with market forces and phasing out directed credit programs toward targeted borrowers.
Established special tribunals to manage bad debt and assets and establish a fund for bad debt resolution.

2.3.4 Narasimham Committee II (1998)

The purpose was to review the implementation of banking reforms.
Recommendations focused on strengthening banks, specifically encouraging mergers to create stronger entities.
The committee aimed to narrow the focus of banks' operations to specific industry niches with high credit potential.
Key recommendation was to enhance capital adequacy ratios, particularly for foreign banks looking to enter the market.

2.3.5 Major Committees on Financial System - Pre and Post-1991 Reforms

Tandon Committee (1974)

Purpose was to provide guidelines on bank supervision and ensure proper use of credit.
The committee identified the importance of relating bank credit to business plans and resources of borrowers.

Khan Committee (1997)

Examined Development Financial Institutions (DFIs) and suggested gradual transition to universal banking.

2.3.6 Lead Bank Scheme (LBS)

Launched in 1969 to mobilize deposits for weaker sections.
Aim was to increase lending to vulnerable segments and facilitate better reach to the public.

2.3.6.1 High-Level Committee (2009)

Reviewed the Lead Bank Scheme given changes in the financial sector.
The committee suggested ways to increase coverage and introduced financial inclusion as a primary goal.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

Test your knowledge on the evolution of Indian banking from its beginnings in the 17th century to the establishment of major banks before independence. This quiz covers key events, significant banks, and related historical milestones. Explore the transformation of India's banking sector over the years.