of the Second World War (1939-1945), and two years thereafter until India achieved independence, were

very challenging period for Indian banking. The years of the First World War were turbulent, and it took toll on many banks which simply collapsed despite the Indian economy gaining indirect boost due to war-related economic

control.activities. The new government initiated a process of playing an active role in the economy of the nation." \u2022 The Banking Regulation Act also provided that no new bank or branch of an existing bank may be opened without a license from the RBI. Lakhs) Paid-up Capital (Rs. the free encyclopedia \u2022 With the enactment of the Banking Regulation Act in 1949. Lakhs) 1913 12 274 35 1914 42 710 109 1915 11 56 5 1916 13 231 4 9 76 25 1918 7 209 1 Post-independence The partition of India bought about a social unrest throughout India in 1947. Till then the banking sector was wide open and there were almost no regulation. and inspect the banks in India. The most adversely impacted provinces were the Punjab and West Bengal. Rather the independence marked the end of a regime of theLaissez-faire for the Indian banking. There were at least 106 numbers of banks which downed shutters during that period. 2 Wikipedia. The important banking regulatory steps were as follows: \u2022 In 1948. The resolution opted for a mixed economy. and it became an institution owned by the Government of India. Riot and chaos ruled. As a result. . more so. Following is a table giving year wise closed banks\u2019 detail during the period. things started changing. So did the economies of both these provinces. With Independence. and no two banks could have common directors. the Reserve Bank of India (RBI) got empowered "to regulate. India's central banking authority the Reserve Bank of India got nationalized. Most of the promoters were private players. 2 YearsNumber of banks that failed Authorised capital (Rs. in the sensitive sectors including banking and finance. This resulted into greater control and involvement of the state in different segments of the economy. The Industrial Policy Resolution adopted by the government in 1948 was the first step towards it. the banking activities had remained paralyzed for months.

This move instigated competition. change in customer behaviour. Thereafter. the Indian banking industry did occupy an important position to facilitate the development of the Indian economy. Moreover. GOI effectively got hold of 91% control of the total banking business of India. 1969. The paper was received with positive enthusiasm. the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill. such as Global Trust Bank (the first of such new generation banks to be set up)which later amalgamated with Oriental Bank of Commerce. resulting increased efficiency and performance and did a lot of good to the banking sector. Retail banking boom can be attributed to this phenomenon. efficient and innovating banking environment in India. Licenses were issued to a small number of private banks. there came the second phase of nationalisation of 6 more commercial banks. By the time. In 1980. These banks also came to be known asNew Generation tech-savvy banks because of their improved service condition and their extensive use of IT in the operations. macro-economic conditions.Interestingly. competition. The bill finally received the presidential approval on 9th August. with the Narsimha Rao government embarking on a policy of liberalisation the situation started changing. again as a result of liberalisation. The decision was even termed as a "masterstroke of political sagacity" by non other than a leader of the stature of Jaypraksh Narayan. 1969. Technology. all nationalised banks grew at a pace of around 4%. during the annual conference of the All India Congress Meeting. ICICI Bank and HDFC Bank. in a paper entitled "Stray thoughts on Bank Nationalisation". the widely used method of 4-6-4 (Borrow at 4%. Post-liberalisation In the early 1990s. The new situation shifted many goal posts. it did employ a quantum volume which could affect national economy. within the next fortnight of issuing the ordinance. Lend at 6%. Indira Gandhi. 1969. The rapid growth in the economy of India. Then. in a swift and sudden move. Go home at 4) of functioning by the banks become redundant. it took some years for the banking sector to mature. It resulted in a debate about the possibility to nationalize the banking industry. almost all banks in India except the State Bank of India. the situation changed dramatically with the nationalization of major banks in India on 19th July. UTI Bank(now re-named as Axis Bank). Nationalisation From Independence. control and regulations. government policies. People started receiving more from the banks and also constantly started demanding more. continued to be owned and operated by private persons. At that point. Till then. the GOI issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19. also did help transform the sector to this new look. . By 1960s. However. resultant of all together ushered a new modern. the-then Prime Minister of India expressed the intention of the GOI favouring nationalisation. despite these provisions. Till 1990s. The reason forwarded for this was to have more control of credit delivery by the government. similar to the average growth rate of the Indian economy.

a rating agency. this is the first time that a foreign individual investor has been allowed to hold more than 5% in a private sector bank since 2000. the banking sector in India is fairly mature in terms of supply. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate. the Reserve Bank of India allowed Warburg Pincus. a private foreign investor. “Currently. India has 88 scheduled commercial banks (SCBs) .000 branches and 17. mortgages and investment services are expected to grow stronger. they may be publicly listed and traded on stock exchanges) and 31 foreign banks. with minimal pressure from the government. Indian banks are considered to have clean. As far as private sector and foreign banks are concerned. In March 2006.With the second phase of economic reforms. the next stage for the Indian banking has been setup with the proposed relaxation in the norms for Foreign Direct Investment. where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%. Notably. The demand for banking services. to increase its stake in Kotak Mahindra Bank to 10%. With passing time. and asset sales in the sector. Earlier. Indian economy is further expected to grow and be strong for quite some time-especially in its services sector. Till now. the reach in rural India still remains a challenge. In terms of quality of assets and capital adequacy. It’s notable that FDI permissible limit. especially retail banking. has gone up to 49% with some restrictions. The Reserve Bank of India is an autonomous body. According to a report by ICRA Limited. strong and transparent balance sheets relative to other banks in comparable economies in its region. Consolidation is going to be another order of the day. product range and reach. takeovers. The RBI in 2005 announced that any stake exceeding 5% by foreign individual investors in the private sector banks would need to be vetted by them. it is not hard to forecast few M&As. the public sector banks . there is hardy any deviation seen from this stated goal which is again very encouraging. Current situation Today. The significant change in the policy and attitude that is currently being seen is encouraging for the banking sector growth. They have a combined network of over 53.000 ATMs. 29 private banks (these do not have government stake. at present.28 public sector banks (that is with the Government of India holding a stake). Therefore.

As they say. despite the fear of US economic recession. Therefore. We can also expect to see many other sea changes in terms of their operations. despite the volatility of Indian stock markets.2% and 6. funding and structures. with the private and foreign banks holding 18.hold over 75 percent of total assets of the banking industry.”3 Despite the current global slowdown. it can safely be said that the banking industry in India will only surge ahead in coming years.5% respectively. this is just the beginning! . every informed observer is more or less optimistic about the 8% to 10% growth per annum for the Indian economy till the next few years.

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