History of Banking in India – GKToday

History of Banking in India

The History of Banking in India is as old as Vedic Civilization. For example, in Vedic age the loan deeds called rnapatra or rnalekhya were prevalent. Interest rates as well as usury (सूदखोरी ) was prevalent in Vedic India.

The Vedic word Kusidin refers to an usurer. Manusmriti condemns usury but calls it an acceptable means of acquiring wealth. Existence of institution money lending proved by the fact that Manusmriti fixes minimum and maximum rates of interest and considers money lending above a certain rate as grave sin. However, it fixes different ceiling rates for different caste.  For example, the rate of interest for Brahmins was 24% while it was 36%, 48% and 60% for Kshatriyas, Vaishyas and Shudras.

Akin to the Vedic era, the Buddhist, Mauryan and Mughal periods are also known for various types of such instruments. The Arthashastra of Kautilya mentions presence of bankers during Maurya era. There were instruments in Maurya Era known as “Adesha” which are equivalent to Bill of exchange of current times. There are plenty of references available in the ancient Indian literature regarding an indigenous banking system that financed the trade and commerce in the country. The businessmen called Shroffs, Seths, Sahukars, Mahajans, Chettis etc. had been carrying on the business of banking since ancient times.

These indigenous bankers included very small money lenders to shroffs with huge businesses, who carried on the large and specialized business even greater than the business of banks.

Origin of Modern Banking Industry in India

First Bank of India

The first bank of India is Bank of Hindustan established in 1770. This bank was established at Calcutta under European management. It was liquidated in 1830-32.

Presidency Banks

From 1612 onwards, British East India Company had set up various factories or trading posts in India with the permission of the local Mughal emperors.  In this process, they had established three presidency towns viz. Madras in 1640, Bombay in 1687 and Bengal Presidency in 1690. East India Company’s headquarters moved from Surat to Bombay (Mumbai) in 1687. Three Presidency banks were set up under charters from the British East India Company- Bank of Calcutta, Bank of Bombay and the Bank of Madras. The dates of their establishment were as follows:

These worked as quasi central banks in India for many years. Since Calcutta was the most active trading port in India, mainly due to the trade of the British Empire; it became a banking center.

Imperial Bank of India

In 1921, the presidency banks viz. Bank of Bengal, Bank of Bombay and Bank of Madras were amalgamated to form Imperial Bank of India. It was a private entity till that time. In 1955, this Imperial Bank of India was nationalized and renamed as State Bank of India. Thus, State bank of India is oldest Bank of India among the banks that exist today.

Oldest Joint Stock Bank of India

A bank that has multiple shareholders is called joint-stock bank. Oldest Joint Stock bank of India was Bank of Upper India that was established in 1863. But this bank failed in 1913. India’s Oldest Joint Stock Bank which is still working is Allahabad Bank. It is also known as India’s oldest public sector bank. It was established in 1865.

First banks owned / managed by Indians

The first Bank with Limited Liability to be managed by Indian Board was Oudh Commercial Bank. It was established in 1881 at Faizabad. This bank failed in 1958. The first bank purely managed by Indians was Punjab National Bank, established in Lahore in 1895. The Punjab national Bank has not only survived till date but also is one of the largest banks in India. However, the first Indian commercial bank which was wholly owned and managed by Indians was Central Bank of India which was established in 1911. So, Central Bank of India is called India’s First Truly Swadeshi bank. Its founder was Sir Sorabji Pochkhanawala and its first chairman was Sir Pherozeshah  Mehta.

First bank to open a branch at foreign soil

Bank of India was the first Indian bank to open a branch outside India in London in 1946 and the first to open a branch in continental Europe at Paris in 1974. Bank of India  was founded in September 1906 as a private entity and was nationalized in July 1969. Since the logo of this Bank is a star, its head office in Mumbai is located in Star House, Bandra East, Mumbai.

Important Dates in Banking History of India

Year Event
1770 Bank of Hindostan, First bank of India was established at Calcutta under European Management.
1786 General Bank of India (First bank established in India)
1790 Bank Of Hindustan which lasted until. 1832.
1806 On June 2, 1806, Bank of Calcutta was established. This was first presidency bank and was later renamed as Bank of Bengal in 1809.
1839 Union Bank
1840 On April 15, 1840, Bank of Bombay was established as second presidency bank.
1843 On July 1, 1843, Bank of Madras established as third presidency bank.
1861 Paper Currency Act was enacted by British Government.
1863 Oldest Joint Stock bank of India named Bank of Upper India was established.
1865 Allahabad Bank was established.
1881 Oudh Commercial Bank, the first Bank of India with Limited Liability to be managed by Indian Board was established at Faizabad
1894 On 19 May 1894, Punjab National Bank was established at Lahore. It was first bank purely managed by Indians. Its founders were Dyal Singh Majithia and Lala Lajpat Rai.
1895 Punjab National Bank In Lahore
1904 City Union Bank
1906 Bank of India
1906 Corporation Bank
1906 On July 1, 1906, the Canara Hindu Permanent Fund was established. It was renamed as Canara Bank in 1910.
1907 On 15 August 1907, Indian Bank was established.
1908 Bank of Baroda was established.
1911 On 21 December 1911, Central Bank of India, first Indian commercial bank which was wholly owned and managed by Indians, was established. It was called First Truly Swadeshi bank
1916 Karur Vysya Bank established.
1919 Union Bank of India on 11 Novermber 1919.
1920 Catholic Syrian Bank
1921 Three presidency banks viz. Bank of Calcutta, Bank of Bombay and Bank of Madras amalgamated to form Imperial Bank of India
1921 Tamilnad Mercantile Bank Limited
1923 Andhra Bank
1924 Karnataka Bank Limited
1925 Syndicate Bank
1926 Lakshmi Vilas Bank Limited
1927 Dhanlaxmi Bank Ltd
1929 South Indian Bank Limited
1931 Vijaya Bank
1934 RBI Act was passed.
1935 1st April 1935, Reserve bank of India commended operation.
1935 Bank of Maharashtra established
1937 Indian Overseas Bank established
1938 Jammu & Kashmir Bank; Dena Bank established.
1943 Oriental Bank of Commerce; UCO Bank, United Bank of India established.
1945 Federal Bank Limited
1949 Nationalization of Reserve Bank of India in January, 1949.
1949 Enactment of Banking Regulation Act
1954 Nainital Bank Limited established
1955 Industrial Credit and Investment Corporation of India (ICICI) established in 1955 as public limited company under Indian Company Act, for developing medium and small industries of private sector. It was parent of current ICICI Bank.
1955 Nationalization of Imperial Bank of India and renamed as State Bank of India (on recommendations of A.D. Gorwala Committee)
1959 Nationalization of SBI Subsidiaries
1964 Industrial Development Bank of India (IDBI) was established on 1 July 1964 under an Act of Parliament as a wholly owned subsidiary of the Reserve Bank of India.
1969 Nationalization of 14 major Banks on 19 July 1969.
1971 Creation of Credit Guarantee Corporation
1975 Creation of Regional Rural Banks
1980 Nationalization of 6 more banks thus making number of India’s Nationalized banks 14+6=20 excluding SBI and its subsidiaries.
1982 National Bank for Agriculture and Rural Development (NABARD) established on July 12, 1982.
1985 Kotak Mahindra Bank established
1993 On 4 September, 1993, New Bank of India was merged with Punjab National Bank. Thus, the nationalized banks number stood 19 excluding SBI and its associates.
1994 UTI Bank (Now Axis Bank) and HDFC banks established.
1994 ICICI Bank established and parent company Industrial Credit and Investment Corporation of India merged into it.
2003 Yes Bank established
2005 Banking Ombudsman scheme was launched.
2007 Cheque Truncation System (CTS) started.
2008 IDBI Nationalized. This makes number of Nationalized Banks 20 again excluding SBI and its subsidiaries.
2008 On 13 August, 2008, State Bank of Saurashtra merged with SBI. This is first associate bank merger in SBI.
2010 Bank of Rajasthan is acquired by ICICI.
2010 On August 2, 2010, the State Bank of Indore is merged with SBI thus making it second associate bank merger in SBI.
2012 RuPay card launched by National Payments Corporation of India (NPCI) on 26 March 2012. The card was later dedicated to India in 2014.
2014 On August 28, Pradhan Mantri Jan Dhan Yojana was launched as biggest ever financial inclusion scheme of the government of India.
2014 RBI issues 2 new banking licenses to Bandhan Financial Services and IDFC. In the same year, RBI also announced recall of pre-2005 currency notes.
2015 Draft guidelines for setting up small banks and payment banks with minimum capital requirement would be Rs 100 crore were issued by RBI.
2015 Bandhan Bank becomes first micro-finance company in India to start operation as full-fledged scheduled commercial bank.
2015 On 8 April 2015, MUDRA Bank Yojana started with a capital of Rs. 20000 Crore and credit guarantee corpus of Rs. 3000 cr.
2016 Government / RBI go for withdrawal of Legal Tender Character of existing ₹ 500/- and ₹ 1000/- Bank Notes and ask the public to deposit of these notes to banks.
2016 In February, 2016, Banks Board Bureau (BBB) starts working as an autonomous body of the Government of India tasked to improve the governance of Public Sector Banks, recommend selection of chiefs of government owned banks and financial institutions and to help banks in developing strategies and capital raising plans. Former Comptroller and Auditor General (CAG) Vinod Rai appointed as its first Chairman.
2016 In March 2016, the Jalandhar based Capital Local Area Bank (CLAB) Limited became the first financial entity in India to get Small Financial Bank Licence by RBI.
2016 National Payments Corporation of India (NPCI) launched “Unified Payments Interface (UPI)” to revolutionise mobile payment system in the country.
2017 In April, 2017, five associates and the Bharatiya Mahila Bank have officially merged with country’s largest lender State Bank of India (SBI). With this merger, SBI joins the league of top 50 banks globally in terms of assets.

Dates of Establishment of various Banks

Year / Date Bank
1786 General Bank of India (First bank established in India)
1790 Bank Of Hindustan which lasted until. 1832.
1839 Union Bank
02 June 1806 Bank of Calcutta
15th April 1840 Bank of Bombay
01st July 1843 Bank of Madras
1863 Bank of Upper India
1865 Allahabad Bank
1881 Oudh Commercial Bank
19th May 1894 Punjab National Bank
1895 Punjab National Bank In Lahore
1904 City Union Bank
1906 Bank of India
12-Mar-06 Corporation Bank
15th August 1907 Indian Bank
1908 Bank of Baroda
01st July 1906 Canara Hindu Permanent Fund (Renamed as Canara Bank in 1910)
21st December 1911 Central Bank of India
1916 Karur Vysya Bank
11-Nov-19 Union Bank of India
26th November 1920 Catholic Syrian Bank
1921 Imperial Bank of India by merger of three presidency banks.
11th May 1921 Tamilnad Mercantile Bank Limited
1923 Andhra Bank
1924 Karnataka Bank Limited
1925 Syndicate Bank
1926 Lakshmi Vilas Bank Limited
1927 Dhanlaxmi Bank Ltd
1929 South Indian Bank Limited
23rd October, 1931 Vijaya Bank
1934 Reserve Bank of India
16th Sept 1935 Bank of Maharashtra
1937 Indian Overseas Bank
1938 Jammu & Kashmir Bank
26th May 1938 Dena Bank
19th February 1943 Oriental Bank of Commerce
1943 UCO Bank
1943 United Bank of India
1945 Federal Bank Limited
1954 Nainital Bank Limited
1955 State Bank of India (Imperial Bank of India renamed as SBI)
1985 Kotak Mahindra Bank
1994 UTI Bank (Now Axis Bank)
Aug-94 HDFC Bank
1996 ICICI Bank
2003 Yes Bank
2013 Bhartiya Mahila Bank

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