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HISTORY OF INDIAN

BANKING
A Bank is a financial institution that provides
banking and other financial services. By the term
bank generally understood an institution that
hold a Banking Licenses. Banking licenses are
generally granted by financial supervision
authorities and provide right to conduct the most
fundamental banking services such as accepting
deposits and making loans. There are also
financial institutions that provide certain banking
services without meeting the legal definition of
bank, a so-called Non-bank. Banks are the subset
of the financial services industry.
The word bank is derived from the Italian banca,
which is derived from German and means bench.
The term bankrupt and broke are similar
derived from banka rotta, which refers to an out
of business bank having its bench physically
broken. Moneylenders in Northern Italy originally
did business in open areas, or big open rooms,
with each lender working from his own bench or
table.
Typically, a bank generates profits from
transaction fees on resources it holds in a trust for

client while paying the interest on the asset.


Development of banking industry in India followed
below stated steps.

Banking in India has its origin as early as


vedic period .It is believed that the transaction
from money lending to banking must have
occurred even before Manu, the great Hindu
jurist, who has devoted a section of his work
to deposits and advance and laid down the
rules relating to rate of interest.
Banking in India has its early origin where the
indigenous bankers played a very important
role in lending money and financing foreign
trade and commerce. The general bank of
India was the first joint stock bank to be
establish in 1786.The other which followed
were the Bank Hindustan and the Bengal
Bank.
In the first half of the 19 th century the east
India Company established three banks; the
bank of Bengal in 1809, the bank of Bombay
in 1840 and the bank of madras in1843. These
three banks are also known as presidency
banks were amalgamated in 1920 and a new
bank, the Imperial bank of India was
established in 1921. With the passing of the
State bank of India act in 1955 the
undertaking of the Imperial bank of India was
taken by the newly constituted State bank of
India.

The Reserve Bank of India which is the Central


Bank was created in 1935 by passing Reserve
bank of India Act, 1934 which was followed up
with the banking regulation in 1949 .These
acts bestowed Reserve bank of India (RBI)
with wide ranging power for licensing,
supervision and control of banks.
In the post-nationalization era, no new private
sector banks were allowed to be set up.
However in 1993 in recognition of the need to
introduce greater competition which could
lead to higher productivity and efficiency of
banking system, new private sector banks
were allowed to be set up in the Indian
banking system .These new banks had to
satisfy among other, the following minimum
requirement:
1.It should be registered as a public limited
company.
2.The minimum paid up capital should be
100 crore
3.The shares should be listed in stock
exchange
4.The headquarter of the bank should be
preferably located in a centre which does
not have the headquarters of any other
bank ;and
5.The bank will be subject to prudential
norms in respect of banking operations,
accounting and other policies laid down
by the RBI. It will have to achieve capital

adequacy of eight percent from the very


beginning.
The banking industry in India is in midst of
transformation, thanks to the economic
liberalization of the country which has
changed business environment in the
country. During the pre-liberalisation period,
the industry was merely focusing on deposit
mobilisation and the branch expansion. But
with liberalization, it found many of its
advances under non-performing
asets(NPA)list.

Indian banking: key developments


1969

19701980

Government acquires ownership in


major banks
Almost all banking operation in
manual mode
Some bank had unit record
machines of IBM for IBR & pay roll
Unprecedented expansion in
geographical coverage, staff,
business & transaction value and
directed lending to agriculture, SSI
& SB sector
Manual systems struggle to handle
exponential rise in transaction

19811990

19911995

19962000

volumes
Outsourcing of data processing to
service bureau begins
Back office systems only in
multinational (MNC)banks offices
Regulator led it introduction in
banks
Product level automation on stand
alone PCs at branch
In-house EDP infrastructure with
Unix boxes, batch processing in
cobol for MIS
Mainframes in corporate office
Expansion slows down
Banking sector reforms resulting in
progressive deregulation of banking,
introduction of prudential banking
norms entry of new private sector
bank
Total branch Automation (TBA) in
Govt. owned old private banks
begins
New private banks are set up with
CBS/TBA form the start
New delivery channels like ATM,
phone banking and internet banking
and convenience of any branch
banking
Retail banking in focus, proliferation
of the credit card
Communication infrastructure

20002003

improves and become cheap.


Commission (CVC),Y2K threat
consumes last two years
Alternate delivery channel find wide
consumer acceptance
IT bill lending legal validity to
electronic transaction
Government owned banks and old
private banks start implementing
CBSs, but initial attempts faces
problems
Banks enter insurance business
launch debit cards.