History of Banking in India
Bank of Hindustan (1770) was the first bank to be established in India (Alexander and Co.) at Calcutta under European management. Other banks set-up were Bank of Bengal (1806), Bank of Bombay (1840), and the Bank of Madras (1843) – these were called Presidency Banks.
First bank with limited liability managed by the Indian board was Oudh Commercial Bank, founded in 1881. The first purely Indian bank was the Punjab National Bank (1894).
Reserve Bank of India
Reserve Bank of India is the Central Bank of the country.
It was established on April, 1935 with a capital of Rs. 5 crore. This capital of Rs. 5 crore was divided into 5 lakh equity shares of Rs. 100 each. In the beginning, the ownership of almost all the share capital was with the non-government share holders.
It was nationalized on Jan 1, 1949 as government acquired the private share holdings.
Administration: 14 directors in Central Board of Directors besides the Governor, 4 Deputy Governors and one Government Official. The Governor is the Chairman of the board and Chief Executive of the Bank.
Governors: First Governor was Sir Smith (1935 – 37) and First Indian Governor was C.D.Deshmukh (1948-49)
Functions of RBI
Issue of Notes: Regulates issue of bank notes above 1 rupee. It acts as the only source of legal tender money because the one rupee notes issued by Ministry of Finance and are also circulated through it. The Reserve Bank has adopted the Minimum Reserve System for note issue. Since 1957, it maintains gold and foreign exchange reserves of Rs. 200 crore, of which at least 115 crore should be in gold.
Banker to the Government: Acts as the banker, agent and advisor to the Government of India. It also manages the public debt for the Government.
Banker’s Bank: The Reserve Bank performs the same function for other banks as the other banks ordinarily perform for their customers.
Controller of Credit: The Reserve Bank undertakes the responsibility of controlling credits created by the commercial banks. To achieve this objective, it makes extensive use of quantitative and qualitative techniques to control and regulate the credit effectively in the country.
Custodian of Foreign Reserves: For the purpose of keeping the foreign exchange rates stable, the reserve Banks buys and sells the foreign currencies and also protects the country’s foreign exchange funds.
It formulates and administers the monetary policy.
Acts as the agent of the Government of India in respect to India’s membership of the IMF and the World Bank.
No personal accounts are maintained and operated in RBI.
Imperial Bank of India
It was created in Jan, 1921 by amalgamation of 3 presidency banks – Bank of Bengal, Bank of Bombay and Bank of Madras.
After nationalization in 1955, its name was changed to State Bank of India.
State Bank of India
It is the biggest commercial bank in the public sector of India.
It has the largest no of branches (more than 13,000) in the world.
State SBI has 5 subsidiaries. These are:
State Bank of Bikaner and JaipurState Bank of HyderabadState Bank of MysoreState Bank of PatialaState Bank of Travancore
Note: State Bank of Saurashtra and State Bank of Indore have been merged with SBI in 2008 and 2010 respectively.
Nationalization of Banks in India
In order to have more control over the banks , 14 large commercial banks whose reserves were more than 50 crore each, were nationalized on July 19, 1969. The banks were:
The Central Bank of IndiaBank of IndiaPunjab National BankCanara BankUnited Commercial BankSyndicate BankBank of BarodaUnited Bank of IndiaUnion Bank of IndiaDena BankAllahabad bankIndian BankIndian Overseas BankBank of Maharashtra
On April 15, 1980, those 6 private sector banks whose reserves were more than Rs. 200 crore each were nationalized. These banks were:
Andhra BankPunjab and Sindh BankNew Bank of IndiaVijaya BankCorporation BankOriental Bank of Commerce
In September, 1993, the New Bank of India was merged with Punjab National Bank.
These nationalized banks, together with Regional Rural Banks (RRBs), come under the category of Public Sector Commercial banks. The other kind of commercial Banks are Private Sector Commercial Banks.