I. HISTORY OF BANKING IN INDIA
There are three different phases in the history of banking in India.
1) Pre-Nationalization Era.
2) Nationalization Stage.
3) Post Liberalization Era.
1) Pre-Nationalization Era:
In India the business of banking and credit was practices even in very early times. The remittance of money through Hundies, an indigenous credit instrument, was very popular. The hundies were issued by bankers known as Shroffs, Sahukars, Shahus or Mahajans in different parts of the country.
The modern type of banking, however, was developed by the Agency Houses of Calcutta and Bombay after the establishment of Rule by the East India Company in 18th and 19th centuries.
During the early part of the 19th Century, ht volume of foreign trade was relatively small. Later on as the trade expanded, the need for banks of the European type was felt and the government of the East India Company took interest in having its own bank. The government of Bengal took the initiative and the first presidency bank, the Bank of Calcutta (Bank of Bengal) was established in 180. In 1840, the Bank of Bombay and IN 1843, the Bank of Madras was also set up.
These three banks also known as “Presidency Bank”. The Presidency Banks had their branches in important trading centers but mostly lacked in uniformity in their operational policies. In 1899, the Government proposed to amalgamate these three banks in to one so that it could also function as a Central Bank, but the Presidency Banks did not favor the idea. However, the conditions obtaining during world war period (1914-1918) emphasized the need for a unified banking institution, as a result of which the Imperial Bank was set up in1921. The Imperial Bank of India acted like a Central bank and as a banker for other banks.
The RBI (Reserve Bank of India) was established in 1935 as the Central Bank of the Country. In 1949, the Banking Regulation act was passed and the RBI was nationalized and acquired extensive regulatory powers over the commercial banks.
In 1950, the Indian Banking system comprised of the RBI, the Imperial Bank of India, Cooperative banks, Exchange banks and Indian Joint Stock banks.
2) Nationalization Stages:
After Independence, in 1951, the All India Rural Credit survey, committee of Direction with Shri. A. D. Gorwala as Chairman recommended amalgamation of the Imperial Bank of India and ten others banks into a newly established bank called the State Bank of India (SBI). The Government of India accepted the recommendations of the committee and introduced the State Bank of India bill in the Lok Sabha on 16th April 1955 and it was passed by Parliament and got the president’s assent on 8th May 1955. The Act came into force on 1st July 1955, and the Imperial Bank of India was nationalized in 1955 as the State Bank of India.
The main objective of establishing SBI by nationalizing the Imperial Bank of India was “to extend banking facilities on a large scale more particularly in the rural and semi-urban areas and to diverse other public purposes.”
In 1959, the SBI (Subsidiary Bank) act was proposed and the following eight state-associated banks were taken over by the SBI as its subsidiaries.
Name of the Bank Subsidiary with effect from
1. State Bank of Hyderabad 1st October 1959
2. State Bank of Bikaner 1st January 1960
3. State Bank of Jaipur 1st January 1960
4. State Bank of Saurashtra 1st May 1960
5. State Bank of Patiala 1st April 1960
6. State Bank of Mysore 1st March 1960
7. State Bank of Indore 1st January 1968
8. State Bank of Travancore 1st January 1960
With effect from 1st January 1963, the State Bank of Bikaner and State Bank of Jaipur with head office located at Jaipur. Thus, seven subsidiary banks State Bank of India formed the SBI Group.The SBI Group under statutory obligations was required to open new offices in rural and semi-urban areas and modern banking was taken to these unbanked remote areas.