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Banking in India

Banking in India

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Published by: sanjeev_logica on Jun 20, 2011
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Banking in India
Banking in India
Originated in the last decades of the 18th century.The oldest bank in existence in India is theState Bank of India, agovernment-owned bank that traces its origins back to June 1806 andthat is the largest commercial bank in the country. Central banking isthe responsibility of theReserve Bank of India, which in 1935 formallytook over these responsibilities from the then Imperial Bank of India,relegating it to commercial banking functions. After India'sindependence in 1947, the Reserve Bank was nationalized and givenbroader powers. In 1969 the government nationalized the 14 largestcommercial banks; the government nationalized the six next largest in1980.Currently, India has 96 scheduled commercial banks (SCBs) - 27public sector banks (that is with theGovernment of Indiaholding astake), 31 private banks (these do not have government stake; theymay be publicly listed and traded on stock exchanges) and 38 foreignbanks. They have a combined network of over 53,000 branches and17,000ATMs. According to a report by ICRA Limited, a ratingagency, the public sector banks hold over 75 percent of total assetsof the banking industry, with the private and foreign banks holding18.2% and 6.5% respectively
Banking in India originated in the last decades of the 18th century.The first banks were The General Bank of India which started in1786, and the Bank of Hindustan, both of which are now defunct. Theoldest bank in existence in India is the State Bank of India, whichoriginated in the Bank of Calcutta in June 1806, which almostimmediately became theBank of Bengal. This was one of the threepresidency banks, the other two being theBank of Bombayand theBank of Madras, all three of which were established under chartersfrom the British East India Company. For many years the Presidencybanks acted as quasi-central banks, as did their successors. Thethree banks merged in 1921 to form theImperial Bank of India, which,upon India's independence, became the State Bank of India.Indian merchants in Calcutta established the Union Bank in 1839, butit failed in 1848 as a consequence of the economic crisis of 1848-49.TheAllahabad Bank, established in 1865 and still functioning today,is the oldest Joint Stock bank in India. It was not the first though. Thathonor belongs to the Bank of Upper India, which was established in1863, and which survived until 1913, when it failed, with some of itsassets and liabilities being transferred to theAlliance Bank of Simla.When theAmerican Civil War stopped the supply of cotton toLancashirefrom theConfederate States, promoters opened banks to finance trading in Indian cotton. With large exposure to speculativeventures, most of the banks opened in India during that period failed.
The depositors lost money and lost interest in keeping deposits withbanks. Subsequently, banking in India remained the exclusivedomain of Europeans for next several decades until the beginning of the 20th century.Foreign banks too started to arrive, particularly inCalcutta, in the1860s. TheComptoire d'Escompte de Parisopened a branch inCalcutta in 1860, and another inBombayin 1862; branches inMadrasandPondichery, then a French colony, followed.HSBC  established itself inBengalin 1869. Calcutta was the most activetrading port in India, mainly due to the trade of theBritish Empire, andso became a banking center.TheBank of Bengal, which later became theState Bank of India. The first entirely Indian joint stock bank was the Oudh CommercialBank, established in 1881 inFaizabad. It failed in 1958. The next wasthePunjab National Bank, established inLahorein 1895, which has survived to the present and is now one of the largest banks in India.Around the turn of the 20th Century, the Indian economy was passingthrough a relative period of stability. Around five decades hadelapsed since theIndian Mutiny, and the social, industrial and other 

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