History of Banking in India

Here are most important questions and answers on History of Banking in India for various competitive examinations

1. What are the ancient proofs of presence of banking system?

Traces of information regarding existing of banking and financial system are found in India right from Vedic era to Buddhist, Mauryan, Satavahana, Sangam, Rajpoot, Sultanate as well as Mughal periods. The most ancient are the loan deeds of Vedic era called rnapatra or rnalekhya.

2. Which financial activity finds mention in Vedic literature?

The practice of usury was prevalent in Vedic India. The Vedic word Kusidin refers to a usurer. It is also mentioned in Manusmriti.

3. What was Adesha in Kautilya’s Arthashastra?

Arthashastra of Kautilya mentions usage of financial instruments called “Adesha” which are equivalent to bill of exchange of current times.

4. What comprised India’s indigenous banking system?

There are plenty of references available in the ancient and medieval literature regarding an indigenous banking system that financed the trade and commerce in the country. The most important part of this system were businessmen called Shroffs, Seths, Sahukars, Mahajans, Chettis etc. These 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.

5. Which was first modern bank of India?

The origin of modern banking in India goes back to British India. The first bank of India called Bank of Hindostan was established in 1770. This bank was established at Calcutta under European management. It was liquidated in 1830-32. Another first bank of India was General Bank of India established in 1790.

6. What were 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.

7. What was Imperial Bank of India? How it became State Bank of India?

In 1921, the three 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.

8. Which is the 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.

9. Which were the 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. 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.

10. Which was the 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.

11. In which year RBI was established?

Between the periods of 1911-1948, there were more than 1000 banks in India, almost all small banks. The Reserve Bank of India was constituted in 1934 as an apex Bank, however without major government ownership. Thus, journey of RBI started as a private bank. It commenced business on April 1, 1935 as a private shareholders’ bank with a paid up capital of rupees five crore.

12. In which year, Banking Regulation Act was passed?

Before Banking Regulation Act, the independent Indian Government had passed Banking Companies Act 1949. Title of this act was later changed to Banking Regulation (Amendment) Act, 1949. It was later amended in 1965 to give extensive powers to the Reserve Bank of India and make the later India’s Central Banking Authority.

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