Phases in the Evolution of Indian Banking

 

PHASES IN THE EVOLUTION OF BANKING:

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

UNDERSTANDING THE EVOLUTION:

Pre-Independence Era:

The East India Company established the Presidential Banks ie. Bank of Bengal, Bank of Bombay and Bank of Madras. 

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1921: These three banks were merged as “Imperial Bank of India.”

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1949: RBI was  nationalised under the Banking Regulation Act, 1949.

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1955: The Imperial Bank of India nationalized as The State Bank of India.

• During British Era, there were 3 types of banks: Imperial Bank of India, Joint stock banks and Foreign owned Exchange Banks (To facilitate trade).
• At independence, there were 97 scheduled private banks and 557 Non Scheduled (small ) private banks organized as joint stock companies and 395 cooperative banks.
• At the time of independence, all the major banks were owned by  private sector and there was almost negligible access to finance for rural areas.

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   1950-60: Large no of banking failures (Out of 566 commercial banks operating in 1951, only 89 survived by 1969)

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1969:     Nationalisation of 14 private banks  in 1969 

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1974: Narasimham Committee recommended for Regional Rural Banks (RRB) to promote Financial Inclusion, accordingly RRBs were established in 1975.

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  1980 : Nationalisation of 6 more banks in taking the Nationalised banks number to 20. 

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Liberalisation Period (1991-Till Date):

In 1991, Narasimham committee recommended certain reforms like entry of private sector and foreign banks in banking sector. 

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In 1993,  RBI gave license to 10 Private sector banks to establish themselves in the country. These were Global Trust Bank, ICICI Bank, HDFC Bank, Axis Bank, Bank of Punjab, IndusInd Bank, Centurion Bank, IDBI Bank, Times Bank and Development Credit Bank. 

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Kotak Mahindra Bank & Yes Bank got banking license from RBI in the year 2003 and 2004.

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2014, RBI grants in-principle approval to IDFC and Bandhan Financial Services to set up banks.

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Apart from this 11 licenses for Payment banks and 10 for Small Finance banks were also given under differential banking.