Brief 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  and 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, Vaishayas 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:

  • 2 June 1806:Bank of Calcutta was established in 1806; it was renamed in 1809 as Bank of Bengal
  • 15 April 1840: Bank of Bombay established
  • 1 July 1843: Bank of Madras established

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

YearEvent
1770Bank of Hindostan, First bank of India was established at Calcutta under European Management.
1786General Bank of India (First bank established in India)
1790Bank Of Hindustan which lasted until. 1832.
1806On June 2, 1806, Bank of Calcutta was established. This was first presidency bank and was later renamed as Bank of Bengal in 1809.
1839Union Bank
1840On April 15, 1840, Bank of Bombay was established as second presidency bank.
1843On July 1, 1843, Bank of Madras established as third presidency bank.
1861Paper Currency Act was enacted by British Government.
1863Oldest Joint Stock bank of India named Bank of Upper India was established.
1865Allahabad Bank was established.
1881Oudh Commercial Bank, the first Bank of India with Limited Liability to be managed by Indian Board was established at Faizabad
1894On 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.
1895Punjab National Bank In Lahore
1904City Union Bank
1906Bank of India
1906Corporation Bank
1906On July 1, 1906, the Canara Hindu Permanent Fund was established. It was renamed as Canara Bank in 1910.
1907On 15 August 1907, Indian Bank was established.
1908Bank of Baroda was established.
1911On 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
1916Karur Vysya Bank established.
1919Union Bank of India on 11 Novermber 1919.
1920Catholic Syrian Bank
1921Three presidency banks viz. Bank of Calcutta, Bank of Bombay and Bank of Madras amalgamated to form Imperial Bank of India
1921Tamilnad Mercantile Bank Limited
1923Andhra Bank
1924Karnataka Bank Limited
1925Syndicate Bank
1926Lakshmi Vilas Bank Limited
1927Dhanlaxmi Bank Ltd
1929South Indian Bank Limited
1931Vijaya Bank
1934RBI Act was passed.
19351st April 1935, Reserve bank of India commended operation.
1935Bank of Maharashtra established
1937Indian Overseas Bank established
1938Jammu & Kashmir Bank; Dena Bank established.
1943Oriental Bank of Commerce; UCO Bank, United Bank of India established.
1945Federal Bank Limited
1949Nationalization of Reserve Bank of India in January, 1949.
1949Enactment of Banking Regulation Act
1954Nainital Bank Limited established
1955Industrial 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.
1955Nationalization of Imperial Bank of India and renamed as State Bank of India (on recommendations of A.D. Gorwala Committee)
1959Nationalization of SBI Subsidiaries
1964Industrial 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.
1969Nationalization of 14 major Banks on 19 July 1969.
1971Creation of Credit Guarantee Corporation
1975Creation of Regional Rural Banks
1980Nationalization of 6 more banks thus making number of India’s Nationalized banks 14+6=20 excluding SBI and its subsidiaries.
1982National Bank for Agriculture and Rural Development (NABARD) established on July 12, 1982.
1985Kotak Mahindra Bank established
1993On 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.
1994UTI Bank (Now Axis Bank) and HDFC banks established.
1994ICICI Bank established and parent company Industrial Credit and Investment Corporation of India merged into it.
2003Yes Bank established
2005Banking Ombudsman scheme was launched.
2007Cheque Truncation System (CTS) started.
2008IDBI Nationalized. This makes number of Nationalized Banks 20 again excluding SBI and its subsidiaries.
2008On 13 August, 2008, State Bank of Saurashtra merged with SBI. This is first associate bank merger in SBI.
2010Bank of Rajasthan is acquired by ICICI.
2010On August 2, 2010, the State Bank of Indore is merged with SBI thus making it second associate bank merger in SBI.
2012RuPay card launched by National Payments Corporation of India (NPCI) on 26 March 2012. The card was later dedicated to India in 2014.
2014On August 28, Pradhan Mantri Jan Dhan Yojana was launched as biggest ever financial inclusion scheme of the government of India.
2014RBI issues 2 new banking licenses to Bandhan Financial Services and IDFC. In the same year, RBI also announced recall of pre-2005 currency notes.
2015Draft guidelines for setting up small banks and payment banks with minimum capital requirement would be Rs 100 crore were issued by RBI.
2015Bandhan Bank becomes first micro-finance company in India to start operation as full-fledged scheduled commercial bank.
2015On 8 April 2015, MUDRA Bank Yojana started with a capital of Rs. 20000 Crore and credit guarantee corpus of Rs. 3000 cr.
2016Government / 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.
2016In 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.
2016In 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.
2016National Payments Corporation of India (NPCI) launched “Unified Payments Interface (UPI)” to revolutionise mobile payment system in the country.
2017In 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 / DateBank
1786General Bank of India (First bank established in India)
1790Bank Of Hindustan which lasted until. 1832.
1839Union Bank
02 June 1806Bank of Calcutta
15th April 1840Bank of Bombay
01st July 1843Bank of Madras
1863Bank of Upper India
1865Allahabad Bank
1881Oudh Commercial Bank
19th May 1894Punjab National Bank
1895Punjab National Bank In Lahore
1904City Union Bank
1906Bank of India
12-Mar-06Corporation Bank
15th August 1907Indian Bank
1908Bank of Baroda
01st July 1906Canara Hindu Permanent Fund (Renamed as Canara Bank in 1910)
21st December 1911Central Bank of India
1916Karur Vysya Bank
11-Nov-19Union Bank of India
26th November 1920Catholic Syrian Bank
1921Imperial Bank of India by merger of three presidency banks.
11th May 1921Tamilnad Mercantile Bank Limited
1923Andhra Bank
1924Karnataka Bank Limited
1925Syndicate Bank
1926Lakshmi Vilas Bank Limited
1927Dhanlaxmi Bank Ltd
1929South Indian Bank Limited
23rd October, 1931Vijaya Bank
1934Reserve Bank of India
16th Sept 1935Bank of Maharashtra
1937Indian Overseas Bank
1938Jammu & Kashmir Bank
26th May 1938Dena Bank
19th February 1943Oriental Bank of Commerce
1943UCO Bank
1943United Bank of India
1945Federal Bank Limited
1954Nainital Bank Limited
1955State Bank of India (Imperial Bank of India renamed as SBI)
1985Kotak Mahindra Bank
1994UTI Bank (Now Axis Bank)
Aug-94HDFC Bank
1996ICICI Bank
2003Yes Bank
2013Bhartiya Mahila Bank

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Comments

  • Kumar Vikram Aditya
    Reply

    Sir,

    Page 5 of the topic Brief History of Banking in India is not opening.

    Please resolve the issue.

  • Kalita Cheri
    Reply

    Respected Sir/Madam;
    Page 5th of Brief History of Banking In India cannot be opened.
    Kindly do look into the matter as soon as possible.
    Thank You

  • Anil Sehgal
    Reply

    (1) I have a grievance against a nationalized bank for not operating a small savings a/c as per Hind Sccession Act (amended in 2005).

    (2) Has RBI any athority to isse directions to the nationalized bank?

    (3) Can RBI act as nodal agency ?

    (4) Shall be gratefl for a prompt reply.

    Thanks.

  • Nitin Bopche
    Reply

    Sir, there is no option for next page. How we will read whole contain.

  • Arush
    Reply

    Important dates and date of establishment of various banks is not showing anything. Please resolve this issue.

  • Arush
    Reply

    sir tables are not showing up…solve this

    • Suresh

      Some work is going on this side by developers. Issues will be resolved in some time.

  • Rishabh Tripathi
    Reply

    very useful article.

  • kushal kumar
    Reply

    Sir it’s very useful for banking examination