Banking in India – Bank PO Study Material
Banking practice was prevalent in ancient India too, it was not as organised and consolidated as it is today. The practice of giving out loans was widely prevalent in the Vedic period. The concept of usury even finds mention in the Vedas, apart from the Sutras and the Jatakas. While some texts condemn usury, others like Manusmriti consider it an acceptable practice. Loan deeds find mention in the Jatakas, Dharmashastras as well as Kautilya’s Arthashastra.
It was common for people to deposit their money in temples, during ancient times in India. The temples acted as a safeguard of sorts, by protecting the wealth of the people from invaders, warriors etc.
Coinage was prevalent in ancient India. Coins were minted in either gold or silver or copper or bronze and often carried the stamp of the monarch or king. A money economy has existed in India since the time of Buddha.
The Mauryan period marked the existence of instrument named ‘adesha’ which is very similar in usage to a bill of exchange. The Buddhist period witnessed large-scale usage of adesha. Trade during this period was also flourishing, so it was common for merchants in large towns to give letters of credit to each other. Trade guilds also performed many banking functions enabling economic activities.
Banking in Colonial India
Formally, banking in India originated in last decades of the 18th century. The first banks in existence in India are the General Bank of India, which started in 1786, and the Bank of Hindustan, which started in 1790. Both of these banks are defunct now. The oldest existing bank in India is the SBI (State Bank of India) which originated as the Bank of Calcutta in 1806, and then became the Bank of Bengal, and was then became one of all the Presidency Banks which were transformed into the Imperial Bank of India.
The Presidency Banks formed the bedrock of the banking system in the earlier colonial times, and acted like quasi-central banks. There were three Presidency banks, namely, the Bank of Bombay, the Bank of Madras, and the Bank of Bengal. All the three Presidency banks were established under Charters of the British East India Company. These three Presidency banks were merged to form the Imperial Bank of India in 1921.
Foreign banks such as the Comptoire d’Escompte de Paris and HSBC were also active in colonial India from the 1860s.
The earliest mention in the colonial era of Indians forming a bank was the Union Bank in Calcutta, which was formed by Indian merchants in 1839. The Allahabad Bank, which is still active today, was established in 1865 and is the oldest Joint Stock bank in India.
The Swadeshi movement propelled many Indians to found banks. Some of the banks established during this time are the Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India. Many banks were found in South Karnataka, especially in the Udipi district. This area, known as South Canara or Dakshina Kannada was home to four nationalised banks and a private sector bank, and is thus, known as the cradle of Indian Banking.
The First and the Second World War saw the banks fall upon hard times. The world wars affected economic activities, which in turn, adversely affected banking activities, with at least 94 banks failing between the years of 1913 and 1918 in India.