History of Banking in India (Before & After Independence) - Know First & Oldest Bank in India

By Stuti Mishra|Updated : September 1st, 2021

The banking system is considered as the backbone of a nation's economy. Modern banking in India originated in the last decade of the 18th century. We have come up with the history of banking, before and after independence.

The history of banking began when empires needed a way to pay for foreign goods and services with something that could be exchanged or facilitated easily. Prior to this, banking procedures were carried by informal methods in the ancient World. However, formal banking has been developed around the 20th century. In India, banking has developed from the primitive to the modern stage of banking in a fashion that has no parallel in world history. 

Today, the Indian banking system is divided into commercial banks (Both Public, Private Banks, schedules and non-scheduled), Regional Rural Banks, Cooperative Banks, etc. In this article, we will dig deeper to make you understand different phases of the Indian Banking system along with other interesting facts.

Table of Content

The banking system is considered as the backbone of a nation's economy. Modern banking in India originated in the last decade of the 18th century. We have come up with history of banking, before and after independence.

 

Evolution of Banking

History of Banking in India in Brief

Phases of Indian Banking System

The advancement in the Indian banking system is classified into 3 distinct phases:

1. The Pre-Independence Phase i.e. before 1947

2. Second Phase from 1947 to 1991

3. Third Phase 1991 and beyond

The Pre-Independence Phase of Banking i.e. before 1947

  • This phase is characterized by the presence of a large number of banks (more than 600).
  • Banking system commenced in India with the foundation of few banks like Bank of Hindustan in Calcutta (now Kolkata) in 1770 which ceased to operate in 1832.
  • After that many banks came but were not successful like:
    (1) General Bank of India (1786-1791)
    (2) Oudh Commercial Bank (1881-1958) – the first commercial bank of India. 
  • Whereas some are successful and continue to lead even now like:
    (1) Allahabad Bank (est. 1865)
    (2) Punjab National Bank (est. 1894, with HQ in Lahore (that time))
    (3) Bank of India (est. 1906)
    (4) Bank of Baroda (est. 1908)
    (5) Central Bank of India (est. 1911)
  • While some others like Bank of Bengal (est. 1806), Bank of Bombay (est. 1840), Bank of Madras (est. 1843) merged into a single entity in 1921 which came to be known as Imperial Bank of India.
  • Imperial Bank of India was later renamed in 1955 as the State Bank of India.
  • In April 1935, Reserve Bank of India was formed based on the recommendation of Hilton Young Commission (set up in 1926).
  • In this time period, most of the bank were small in size and suffered from a high rate of failures. As a result, public confidence is low in these banks and deposit mobilization was also very slow. People continued to rely on the unorganized sector (moneylenders and indigenous bankers).

The Second Phase of Banking from 1947 to 1991

  • Broadly the main characteristic feature of this phase is the Nationalization of the bank
  • With the view of economic planning, nationalization emerged as an effective measure. 
    Need for nationalization in India:
    (a) The banks mostly catered to the needs of large industries, big business houses.
    (b) Sectors such as agriculture, small-scale industries and exports were lagging behind.
    (c) The poor masses continued to be exploited by the moneylenders.
  • Following this, in the year 1949, 1st January the Reserve Bank of India was nationalized.
  • Fourteen commercial banks were nationalized on 19th July 1969. Smt. Indira Gandhi was the Prime Minister of India, during in 1969. The following banks are nationalized:
    1. Central Bank of India           
    2. Bank of India                           
    3.
     Punjab National Bank

    4. Bank of Baroda                   
    5. United Commercial Bank           
    6. Canara Bank          
    7. Dena Bank                        

    8. United Bank                             
    9.
    Syndicate Bank              
    10. Allahabad Bank                
    11. 
    Indian Bank                          

    12. Union Bank of India
    13. Bank of Maharashtra        
    14. Indian Overseas Bank
  • Six more commercial banks were nationalized in April 1980. These are mentioned below:
    1. Andhra Bank              
    2.
    Corporation Bank                    
    3.
    New Bank of India

    4. Oriental Bank of Commerce                            
    5.
    Punjab & Sindh Bank                
    6
    .Vijaya Bank.
  • Meanwhile, on the recommendation of the Narasimham Committee, Regional Rural Banks (RRBs) were formed on Oct 2, 1975. The objective behind the formation of RRBs was to serve the large unserved population of rural areas and promoting financial inclusion.
  • With a view to meet the specific requirement from the different sector (i.e. agriculture, housing, foreign trade, industry) some apex level banking institutions were also set up like:(a) NABARD (est. 1982)
    (b) EXIM (est. 1982)
    (c) NHB (est. 1988)
    (d) SIDBI (est. 1990)

Impact of Nationalization

  • Improved efficiency in the Banking system – since the public‘s confidence got boosted.
  • Sectors such as Agriculture, small and medium industries started getting funds which led to economic growth.
  • Increased penetration of Bank branches in rural areas.

Third Phase of Banking 1991 and Beyond

  • This period saw remarkable growth in the process of the development of banks with the liberalization of economic policies
  • Even after nationalization and the subsequent regulations that followed, a large portion of the masses is untouched by the banking services.
  • Considering this, in 1991, the Narasimham committee gave its recommendation i.e. to allow the entry of private sector players into the banking system.
  • Following this, RBI gave licenses to 10 private entities, out of which few survived the market demands, which are ICICI, HDFC, Axis Bank, IndusInd Bank, DCB.
  • In 1998, the Narsimham committee again recommended the entry of more private players. As a result, RBI gave a license to the following newbies:
    (a) Kotak Mahindra Bank (2001)
    (b)Yes Bank (2004)
  • In 2013-14, the third round of bank licensing took place and in 2015, IDFC Bank and Bandhan Bank emerged.
  • In order to further financial inclusion, RBI also proposed to set up 2 new kinds of banks i.e. Payment Banks and Small Banks.
  • In 2015, RBI gave in-principle licenses to 11 entities to launch Payments Bank and granted 'in-principle' approval to the 10 applicants to set up Small Finance Banks. 

Note:

  • The RBI issued a license to the bank under Section 22(1) of the Banking Regulation Act, 1949, to carry on the business of Small Finance Bank (SFB) and Payments Bank in India.

Committee on Small Banks - The applications were analyzed and evaluated by an External Advisory Committee (EAC). The EAC for small banks was chaired by Usha Thorat, former deputy governor, RBI. 

Committee on Payment Banks - These applications were analyzed and evaluated by an External Advisory Committee (EAC). The EAC Committee for Payment Banks was chaired by Dr. Nachiket Mor, Director, Central Board of the Reserve Bank of India. 

List of Public Sector Banks & Private Sector Banks

Banks

Headquarters

Axis Bank

Mumbai

Bank of Baroda

Vadodara

Bank of India

Mumbai

Bank of Maharashtra

Pune

Bandhan Bank

Kolkata  

Canara Bank

Bengaluru

Central Bank of India

Mumbai

Citi Union Bank

Tamil Nadu

Dhanlaxmi Bank

Kerala 

Federal Bank

Kochi 

HDFC Bank

Mumbai 

IDBI Bank

Mumbai

Indian Bank

Chennai

Indian Overseas Bank

Chennai

ICICI Bank

Mumbai

IDFC Bank

Mumbai 

IndusInd Bank

Mumbai 

Karnataka Bank

Mangaluru 

Karur Vysya Bank

Tamil Nadu

Kotak Mahindra Bank

Mumbai 

Lakshmi Vilas Bank

Chennai 

Punjab National Bank

New Delhi

Punjab & Sind Bank

New Delhi

RBL Bank

Mumbai 

State Bank of India

Mumbai

South Indian Bank

Thrissur, Kerala

UCO Bank

Kolkata

Union Bank of India

Mumbai

Yes Bank

Mumbai 

List of Small Finance Bank

Bank Name

Headquarters

Capital Small Finance Bank

Jalandhar, Punjab

Equitas Small Finance Bank

Chennai, Tamil Nadu

Utkarsh Small Finance Bank

Varanasi, UP

Suryoday Small Finance Bank

Belapur, Navi Mumbai

Ujjivan Small Finance Bank

Bengaluru, Karnataka

ESAF Small Finance Bank

Thrissur, Kerala

Au Small Finance Bank

Jaipur, Rajasthan

Fincare Small Finance Bank

Bengaluru, Karnataka

North East Small Finance Bank

Guwahati, Assam

Jana Small Finance Bank

Bengaluru, Karnataka

List of Payments Bank

Bank Name

 Commenced

Headquarters

Airtel Payment Bank Ltd

Nov 2016

New Delhi India

Paytm Payments Bank

Nov 2017

Noida, U.P.

Fino Payments Bank

July 2017

Mumbai, Maharashtra

Jio Payments Bank

April 2017

Mumbai, Maharashtra

Aditya Birla Idea Payments Bank

February 2018

Mumbai, Maharashtra

India Post Payment bank

September 2018

New Delhi India

Important Pointers for Banking in India

1. Allahabad Bank, established in 1865 – Allahabad Bank is the oldest Public Sector Bank in India having branches all over India and serving customers for the last 145 years.

2. Imperial Bank of India was later renamed in 1955 as the State Bank of India.

3. The first Bank of India with Limited Liability to be managed by the Indian Board was Oudh Commercial Bank. It was established in 1881 at Faizabad.

4. Punjab National Bank is the first bank purely managed by Indians, which was established in Lahore in 1895.

5. First Truly Swadeshi Bank – Central Bank of India is called India’s First Truly Swadeshi bank, which was established in 1911 and wholly-owned and managed by Indians.

6.  Union Bank of India was inaugurated by Mahatma Gandhi in 1919.

7. Osborne Smith was the first governor of the Reserve Bank.

8. CD Deshmukh was the first Indian to be the governor of the Reserve Bank.

9. Savings account system in India was started by Presidency Bank, 1833.

10. The first Indian bank to open an overseas branch is the Bank of India. It established a branch in London in 1946.

11. ICICI Bank was the first Indian bank to provide an internet banking facility.

12. Central Bank of India was the first public bank to introduce Credit card.

13. ICICI is the first bank to provide a mobile ATM.

14. State Bank of India has the maximum number of overseas branches.

15. Capital Small Finance Bank is India's first small finance bank started its banking operations in April 2016 in Jalandhar, Punjab. 

16. Airtel Payment bank Ltd is the first payments bank in India.

17. On January 02, 2019, the Cabinet approves the merger of Vijaya Bank & Dena Bank with Bank of Baroda. After this merger, Bank of Baroda will become the third biggest public sector bank. 

18. On 18th December 2018, IDFC Bank and non-banking financial company (NBFC) Capital First merged to create IDFC First Bank. Its headquarter is in Mumbai. 

19. The government amalgamated three Regional Rural Banks -- Punjab Gramin Bank, Malwa Gramin Bank and Sutlej Gramin Bank -- into a single RRB with effect from January 1, 2019. New Gramin Bank is known as -Punjab Gramin Bank.

This is all in this article. Stay tuned for more article like these

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Stuti MishraStuti MishraMember since Feb 2020
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Suraj Yadav

Suraj YadavNov 19, 2020

Thank you so much sir
Sanchita Maharana
Tq mam ... it's really good notes with More information👍👍
punitha BS

punitha BSJan 25, 2021

Punjab national bank 1894
Vinutha

VinuthaMay 16, 2021

Thank you ma'am
Samridhi Sharma
Ma'am....kya ye Hindi me provide kr skti h plzz
Prince Raj Singh
study se pure doubt clear ho gaye thanks 🙏🙏🎉
Sanket Kumar
The only thing missing I guessed is the tagline of every bank, otherwise this notes is really awesome... everything means everything in one notes.
Thanks 👍
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  • 1770

  • Oudh Commercial Bank

  •  1955

  • RBI was established on the recommendation of Hilton Young Commission in April 1935.

  • ICICI Bank

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