Origin of Banking in India

A money economy existed in India since the days of Budha, but banking in
India flourished in the ancient Vedic times. Even in the Rig Veda, there was
a mention about indebtedness and the earliest dharma Shastras lay down rates
of interest and regulations governing debts and mortgages. References to
money lending business are found in the Manu Smriti too. The literature of
the Buddhist period, the Jatakas and archeological discoveries contain
evidence of the existence of “Srshthis” or bankers. There were exentensive
references in the laws of Manu to money lending and other problems. Trade
guides acted as bankers both for receiving deposits and issuing loans. The
larger temples served as bankers and in South India, the village communes
occasionally advanced loans to peasants. The emergence of Vaishyas as
indigenous bankers and hundi as the earliest form of Indian bill of exchange
were two important landmarks in the history of Indian banking. Indigenous
bankers played a very important tole in lending money for trade and
commerce. Every town, big or small, had a Seth, a Shah, a Shroff or a
Chettair, who performed a number of banking functions.
With the expansion of trade and commerce, the concept of banking gained
importance. The handling of banking gradually transcended from individuals
to groups and later to companies. With the Industrial Revolution of the 18th
and 19th centuries, it attained a more significant place in the area of lending.
Banks in their first primitive beginning and late in more developed forms did
not enjoy a steady and harmonious growth. Banking emerged and evolved
through various phases adapting it continuously to meet the increasing needs
of trade and commerce.
During the Moghul period, the indigenous bankers played a very important
role in lending money and financing foreign trade and commerce in India.
During the British rule, the agency houses carried on the banking business.
Commercial banking in India began in 1770 with the establishment of the
first joint stock bank, named the Bank of Hindustan, by the English Agency
in Culcutta. But, this bank failed in1832. Later the General Bank of India
was established in 1786. In fact, real beginning of the modern commercial
banking in the country was made with the establishment of the Bank of
Bengal in 1806