Indian Banking has witnessed major changes starting from nationalization in 1969 of 14
private sector banks again to privatization of banks in 1990s. Year 2014 resulted in
setting of small Payment Banks in different nooks & corners of the country to a
diametrically opposite step of mergers and consolidation of many weak public sector banks with a few large banks in 2018/19. What has been the economic & financial
compulsions/reasons for such changes in five decades?
Answers
Answer:
History of Banking in India
Banking in India forms the base for the economic development of the country. Major changes in the banking system and management have been seen over the years with the advancement in technology, considering the needs of people.
The History of Banking in India dates back to before India got independence in 1947 and is a key topic in terms of questions asked in various Government exams. In this article, we shall discuss in detail the evolution of the banking sector in India.
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The banking sector development can be divided into three phases:
Phase I: The Early Phase which lasted from 1770 to 1969
Phase II: The Nationalisation Phase which lasted from 1969 to 1991
Phase III: The Liberalisation or the Banking Sector Reforms Phase which began in 1991 and continues to flourish till date
History of Banking in India PDF:-Download PDF Here
Given below is a pictorial representation of the evolution of the Indian banking system over the years:

Candidates can get details about the functions of Banks at the linked article.
Further below in this article, we shall discuss the different phases of Bank industry evolution.
Pre Independence Period (1786-1947)
The first bank of India was the “Bank of Hindustan”, established in 1770 and located in the then Indian capital, Calcutta. However, this bank failed to work and ceased operations in 1832.
During the Pre Independence period over 600 banks had been registered in the country, but only a few managed to survive.
Following the path of Bank of Hindustan, various other banks were established in India. They were:
The General Bank of India (1786-1791)
Oudh Commercial Bank (1881-1958)
Bank of Bengal (1809)
Bank of Bombay (1840)
Bank of Madras (1843)
During the British rule in India, The East India Company had established three banks: Bank of Bengal, Bank of Bombay and Bank of Madras and called them the Presidential Banks. These three banks were later merged into one single bank in 1921, which was called the “Imperial Bank of India.”
The Imperial Bank of India was later nationalised in 1955 and was named The State Bank of India, which is currently the largest Public sector Bank.
Given below is a list of other banks which were established during the Pre-Independence period:
Pre-Indepence Banks in IndiaBank NameYear of EstablishmentAllahabad Bank1865Punjab National Bank1894Bank of India1906Central Bank of India1911Canara Bank1906Bank of Baroda1908
If we talk of the reasons as to why many major banks failed to survive during the pre-independence period, the following conclusions can be drawn:
Indian account holders had become fraud-prone
Lack of machines and technology
Human errors & time-consuming
Fewer facilities
Lack of proper management skills
Following the Pre-Independence period was the post-independence period, which observed some significant changes in the banking industry scenario and has till date developed a lot.
Related Links:
Indian Financial SystemTypes of Bank AccountsTypes of ChequesTypes of Banks in IndiaPrinciples of InsuranceGovernment Schemes
Post Independence Period (1947-1991)
At the time when India got independence, all the major banks of the country were led privately which was a cause of concern as the people belonging to rural areas were still dependent on money lenders for financial assistance.
With an aim to solve this problem, the then Government decided to nationalise the Banks. These banks were nationalised under the Banking Regulation Act, 1949. Whereas, the Reserve Bank of India was nationalised in 1949.
Candidates can check the list of Banking sector reforms and Acts at the linked article.
Following it was the formation of State Bank of India in 1955 and the other 14 banks were nationalised between the time duration of 1969 to 1991. These were the banks whose national deposits were more than 50 crores.
Given below is the list of these 14 Banks nationalised in 1969
Explanation:
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Answer:
Financial sector reforms are changes to the banking system and capital markets. A well-functioning capital market and an efficient banking system are required to mobilise household savings and channel them to productive uses. Saving and productive investment at high rates are critical for economic growth.
- Lowering of the Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR)
- Prudential Standards: Capital Adequacy Ratio
- Competitive Financial System
- Non-Performing Assets (NPA) and Income Recognition Norm
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