Banking in India

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Structure of the organised banking sector in India. Number of banks are in brackets.

Banking in India originated in the last decades of the 18th century. The first banks were The
General Bank of India which started in 1786, and the Bank of Hindustan, both of which are now
defunct. The oldest bank in existence in India is the State Bank of India, which originated in the
Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was
one of the three presidency banks, the other two being the Bank of Bombay and the Bank of
Madras, all three of which were established under charters from the British East India Company.
For many years the Presidency banks acted as quasi-central banks, as did their successors. The
three banks merged in 1921 to form the Imperial Bank of India, which, upon India's
independence, became the State Bank of India.

Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a
consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and
still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company
that issues stock and requires shareholders to be held liable for the company's debt) It was not the
first though. That honor belongs to the Bank of Upper India, which was established in 1863, and
which survived until 1913, when it failed, with some of its assets and liabilities being transferred
to the Alliance Bank of Simla.

When the American Civil War stopped the supply of cotton to Lancashire from the Confederate
States, promoters opened banks to finance trading in Indian cotton. With large exposure to
speculative ventures, most of the banks opened in India during that period failed. The depositors
lost money and lost interest in keeping deposits with banks. Subsequently, banking in India
remained the exclusive domain of Europeans for next several decades until the beginning of the
20th century.

Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire
d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862;
branches in Madras and Puducherry, then a French colony, followed. HSBC established itself in
Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the
British Empire, and so became a banking center.

The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in
Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in
1895, which has survived to the present and is now one of the largest banks in India.

Around the turn of the 20th Century, the Indian economy was passing through a relative period
of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial
and other infrastructure had improved. Indians had established small banks, most of which
served particular ethnic and religious communities.

The presidency banks dominated banking in India but there were also some exchange banks and
a number of Indian joint stock banks. All these banks operated in different segments of the
economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign
trade. Indian joint stock banks were generally under capitalized and lacked the experience and
maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon
to observe, "In respect of banking it seems we are behind the times. We are like some old
fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome
compartments."

The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi
movement. The Swadeshi movement inspired local businessmen and political figures to found
banks of and for the Indian community. A number of banks established then have survived to the
present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank
and Central Bank of India.

The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina
Kannada and Udupi district which were unified earlier and known by the name South Canara
( South Kanara ) district. Four nationalised banks started in this district and also a leading private
sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian
Banking".

During the First World War (1914-1918) through the end of the Second World War (1939-1945),
and two years thereafter until the independence of India were challenging for Indian banking.
The years of the First World War were turbulent, and it took its toll with banks simply collapsing
despite the Indian economy gaining indirect boost due to war-related economic activities. At
least 94 banks in India failed between 1913 and 1918 as indicated in the following table:

Number of banks Authorised capital Paid-up Capital

Years
that failed (Rs. Lakhs) (Rs. Lakhs)
1913 12 274 35
1914 42 710 109
1915 11 56 5
1916 13 231 4
1917 9 76 25
1918 7 209 1
Contents
[hide]

 1 Post-independence
 2 Nationalisation
 3 Liberalisation
 4 Further reading
 5 Notes
 6 See also
 7 External links

[edit] Post-independence
The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal,
paralyzing banking activities for months. India's independence marked the end of a regime of the
Laissez-faire for the Indian banking. The Government of India initiated measures to play an
active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the
government in 1948 envisaged a mixed economy. This resulted into greater involvement of the
state in different segments of the economy including banking and finance. The major steps to
regulate banking included:

 In 1948, the Reserve Bank of India, India's central banking authority, was nationalized,
and it became an institution wholly owned and run by the Government of India.
  In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of
India (RBI) "to regulate, control, and inspect the banks in India."
 The Banking Regulation Act also provided that no new bank or branch of an existing
bank could be opened without a license from the RBI, and no two banks could have
common directors.

However, despite these provisions, control and regulations, banks in India except the State Bank
of India or SBI, continued to be owned and operated by private persons. This changed with the
nationalisation of major banks in India on 19 July 1969.

[edit] Nationalisation
The RBI was nationalized on January 1, 1949 in terms of the Reserve Bank of India (Transfer to
Public Ownership) Act, 1948 (RBI, 2005b).[Reference www.rbi.org.in]

By the 1960s, the Indian banking industry had become an important tool to facilitate the
development of the Indian economy. At the same time, it had emerged as a large employer, and a
debate had ensued about the possibility to nationalise the banking industry. Indira Gandhi, the-
then Prime Minister of India expressed the intention of the GOI in the annual conference of the
All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The
paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and
the GOI issued an ordinance and nationalised the 14 largest commercial banks with effect from
the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the
step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the
Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it
received the presidential approval on 9 August 1969.

A second dose of nationalization of 6 more commercial banks followed in 1980. The stated
reason for the nationalization was to give the government more control of credit delivery. With
the second dose of nationalization, the GOI controlled around 91% of the banking business of
India. Later on, in the year 1993, the government merged New Bank of India with Punjab
National Bank. It was the only merger between nationalized banks and resulted in the reduction
of the number of nationalised banks from 20 to 19. After this, until the 1990s, the nationalised
banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

[edit] Liberalisation
In the early 1990s, the then Narsimha Rao government embarked on a policy of liberalization,
licensing a small number of private banks. These came to be known as New Generation tech-
savvy banks, and included Global Trust Bank (the first of such new generation banks to be set
up), which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI
Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of
India, revitalized the banking sector in India, which has seen rapid growth with strong
contribution from all the three sectors of banks, namely, government banks, private banks and
foreign banks.
The next stage for the Indian banking has been set up with the proposed relaxation in the norms
for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights
which could exceed the present cap of 10%,at present it has gone up to 74% with some
restrictions.

The new policy shook the Banking sector in India completely. Bankers, till this time, were used
to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning. The new wave
ushered in a modern outlook and tech-savvy methods of working for traditional banks.All this
led to the retail boom in India. People not just demanded more from their banks but also received
more.

Currently (2007), banking in India is generally fairly mature in terms of supply, product range
and reach-even though reach in rural India still remains a challenge for the private sector and
foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to
have clean, strong and transparent balance sheets relative to other banks in comparable
economies in its region. The Reserve Bank of India is an autonomous body, with minimal
pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage
volatility but without any fixed exchange rate-and this has mostly been true.

With the growth in the Indian economy expected to be strong for quite some time-especially in
its services sector-the demand for banking services, especially retail banking, mortgages and
investment services are expected to be strong. One may also expect M&As, takeovers, and asset
sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak
Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed
to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any
stake exceeding 5% in the private sector banks would need to be vetted by them.

In recent years critics have charged that the non-government owned banks are too aggressive in
their loan recovery efforts in connection with housing, vehicle and personal loans. There are
press reports that the banks' loan recovery efforts have driven defaulting borrowers to ^ "ICICI
personal loan customer commits suicide after alleged harassment by recovery agents".
Parinda.com. http://www.parinda.com/news/crime/20070918/2025/icici-personal-loan-customer-
commits-suicide-after-alleged-harassment-recov. Retrieved 2010-07-28.

 List of banks in India

How is money created? Other than the currency and bills that are made in a national mint, the
money that our nation uses on a daily basis is actually created by commercial banks in the form
of deposits and other things.

A bank depends on the misfortune of its customers to create money. Someone must be in debt to
commercial banks in order for money and credit systems to work. When a borrower spends the
money he or she has been loaned, the recipient deposits it in another bank. That deposit
represents the creation of new money. A bank pays its bills by borrowing if people don't pay
their taxes. The interest that a bank charges customers on the loans it gives becomes that bank's
profit. A customer's assets and liabilities add up equally. When a bank makes unnecessary profit,
it makes for a burden on taxpayers.

The Federal Reserve processes checks and cash. Banks order cash from the Fed when they need
it, and ship it cash when they have too much. Checks can even be processed cross-country; for
instance, if someone from Los Angeles writes a check in Philadelphia, the Philly bank credits the
person's account and sends the check to the Federal Reserve of Philadelphia, then the check is
sent to the Federal Reserve of Los Angeles where it goes to the bank of Los Angeles. The Fed
processes one third of all checks written in America. Many of them are deposited electronically.
High-tech machines are used for all sorts of transactions. Fedwire is a program that allows
money to be transferred over seconds. ACH allows for constant, direct payments. There are also
machines designed to detect bill denominations, extent of use, and authenticity.

Banks can borrow money from the Fed as well, although it is considered a last resort lender. It
acts to prevent too much borrowing. Types of loans are adjustment credit, for overnight loans or
short-term problems; seasonal loans, which are extended up to nine months to help in seasonal
swings in deposits and loans; and extended loans, which are prolonged because of financial
difficulties if banks have a plan to correct the problems. Banks aren't allowed to take advantage
of interest or discount rates and make profits by borrowing, either.

The Fed keeps the banking system competitive by creating new banks and mergers frequently. It
examines bank information for security, and the banks themselves for safety. The Fed will fine
banks, suspend employees, or pass new laws if they feel the need to.
There are 12 Fed district banks, member banks, and the Board of Governors, which heads the
Federal Reserve. Each member of the Board is appointed to 14-year terms so the members are
well insulated from outside political pressures. It is financially self-sufficient as a bank; it doesn't
rely on Congress appropriations, but rather on interest from large holdings on US government
securities.

The Board gives the Treasury the excess of what it took as opposed to what it spent. It sets
reserve requirements (a monetary policy tool, along with discount rates and open-market
operations); this is important because it affects the amount of loans and bank money commercial
banks have. (Commercial banks are those that take deposits and give loans on an individual
basis.) Reserve requirements are percentages of money or credit banks must keep on hand or on
deposit at the Federal Reserve Bank.

Additional resources
 Banks Power Systems
 Bank - Wikipedia, the free encyclopedia
 Banks
 FDIC: Institution Directory

History of Banking in India

Without a sound and effective banking system in India it cannot have a healthy economy. The
banking system of India should not only be hassle free but it should be able to meet new
challenges posed by the technology and any other external and internal factors.

For the past three decades India's banking system has several outstanding achievements to its
credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or
cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of
the country. This is one of the main reason of India's growth process.

The government's regular policy for Indian bank since 1969 has paid rich dividends with the
nationalisation of 14 major private banks of India.

Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or
for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient
bank transferred money from one branch to other in two days. Now it is simple as instant
messaging or dial a pizza. Money have become the order of the day.

The first bank in India, though conservative, was established in 1786. From 1786 till today, the
journey of Indian Banking System can be segregated into three distinct phases. They are as
mentioned below:
  Early phase from 1786 to 1969 of Indian Banks
 Nationalisation of Indian Banks and up to 1991 prior to Indian banking sector Reforms.
 New phase of Indian Banking System with the advent of Indian Financial & Banking
Sector Reforms after 1991.

To make this write-up more explanatory, I prefix the scenario as Phase I, Phase II and Phase III.

Phase I

The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and
Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay
(1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These
three banks were amalgamated in 1920 and Imperial Bank of India was established which started
as private shareholders banks, mostly Europeans shareholders.

In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National
Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and 1913, Bank of
India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore
were set up. Reserve Bank of India came in 1935.

During the first phase the growth was very slow and banks also experienced periodic failures
between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the
functioning and activities of commercial banks, the Government of India came up with The Banking
Companies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending
Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for
the supervision of banking in india as the Central Banking Authority.

During those days public has lesser confidence in the banks. As an aftermath deposit
mobilisation was slow. Abreast of it the savings bank facility provided by the Postal department
was comparatively safer. Moreover, funds were largely given to traders.

Phase II

Government took major steps in this Indian Banking Sector Reform after independence. In 1955,
it nationalised Imperial Bank of India with extensive banking facilities on a large scale specially
in rural and semi-urban areas. It formed State Bank of india to act as the principal agent of RBI
and to handle banking transactions of the Union and State Governments all over the country.

Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on 19th July,
1969, major process of nationalisation was carried out. It was the effort of the then Prime
Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country was
nationalised.

Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980 with
seven more banks. This step brought 80% of the banking segment in India under Government
ownership.
The following are the steps taken by the Government of India to Regulate Banking Institutions in
the Country:

 1949 : Enactment of Banking Regulation Act.

 1955 : Nationalisation of State Bank of India.
 1959 : Nationalisation of SBI subsidiaries.
 1961 : Insurance cover extended to deposits.
 1969 : Nationalisation of 14 major banks.
 1971 : Creation of credit guarantee corporation.
 1975 : Creation of regional rural banks.
 1980 : Nationalisation of seven banks with deposits over 200 crore.

After the nationalisation of banks, the branches of the public sector bank India rose to
approximately 800% in deposits and advances took a huge jump by 11,000%.

Banking in the sunshine of Government ownership gave the public implicit faith and immense
confidence about the sustainability of these institutions.

Phase III

This phase has introduced many more products and facilities in the banking sector in its reforms
measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his
name which worked for the liberalisation of banking practices.

The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a
satisfactory service to customers. Phone banking and net banking

is introduced. The entire system became more convenient and swift. Time is given more
importance than money.

The financial system of India has shown a great deal of resilience. It is sheltered from any crisis
triggered by any external macroeconomics shock as other East Asian Countries suffered. This is
all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not
yet fully convertible, and banks and their customers have limited foreign exchange exposure.
Public Sector Banks In India
Among the Public Sector Banks in India, United Bank of India is one of the 14 major banks which were
nationalised on July 19, 1969. Its predecessor, in the Public Sector Banks, the United Bank of India Ltd.,
was formed in 1950 with the amalgamation of four banks viz. Comilla Banking Corporation Ltd. (1914),
Bengal Central Bank Ltd. (1918), Comilla Union Bank Ltd. (1922) and Hooghly Bank Ltd. (1932).

Oriental Bank of Commerce (OBC), a Governmet of India Undertaking offers Domestic, NRI and
Commercial banking services. OBC is implementing a GRAMEEN PROJECT in Dehradun District (UP) and
Hanumangarh District (Raiasthan) disbursing small loans

. This Public Secotor Bank India has implemented 14 point action plan for strengthening of credit
delivery to women and has designated 5 branches as specialized branches for women entrepreneurs.

The following are the list of Public Sector Banks in India

 Allahabad Bank
 Andhra Bank
 Bank of Baroda
 Bank of India
 Bank of Maharastra
 Canara Bank
 Central Bank of India
 Corporation Bank
 Dena Bank
 IDBI Bank
 Indian Bank
 Indian Overseas Bank
 Oriental Bank of Commerce
 Punjab & Sind Bank
 Punjab National Bank
  Syndicate Bank
 UCO Bank
 Union Bank of India
 United Bank of India
 Vijaya Bank

List of State Bank of India and its subsidiary, a Public Sector Banks

 State Bank of India

o State Bank of Bikaner & Jaipur
o State Bank of Hyderabad
o State Bank of Indore
o State Bank of Mysore
o State Bank of Saurastra
o State Bank of Travancore

>> Public Sector Banks

Sr.No Public Sector Banks Web Site 1  Allahabad Bank  www.allahabadbank.in  2  Andhra Bank  www.andhrabank.in  3  Bank of Baroda 
www.bankofbaroda.com  4  Bank of India  www.bankofindia.com  5  Bank of Maharashtra  www.bankofmaharashtra.in  6  Canara Bank 
www.canarabank.com  7  Central Bank of India  www.centralbankofindia.co.in  8  Corporation Bank  www.corpbank.com  9  Dena Bank 
www.denabank.com  10  IDBI Bank Limited  www.idbi.com  11  Indian Bank  www.indianbank.in   12  Indian Overseas Bank  www.iob.in 
13  Oriental Bank of Commerce  www.obcindia.co.in  14  Punjab & Sind Bank  www.psbindia.com  15  Punjab National Bank 
www.pnbindia.com  16  State Bank of India  www.statebankofindia.com  17  Syndicate Bank  www.syndicatebank.com  18  UCO Bank 
www.ucobank.com  19  Union Bank of India  www.unionbankofindia.co.in   20  United Bank of India  www.unitedbankofindia.com  21  Vijaya
Bank  www.vijayabank.com 

List of Top 5 India’s Public Sector Banks

Here is provided the list of top five public sector in India, which provides a service like Retail
Banking Services, Personal loans, Vehicle Loans, Life Insurance, Health insurance Mutual
Funds, stock investment etc. This top 5 India’s Public Sector Banks list includes The State bank
of India, Bank of Baroda, Punjab National Bank, IDBI Bank and Bank of India. There are total
26 public sector banks in India, in which 19 are nationalized banks, 6 belong to SBI & associates
group and 1 bank is classified as other public sector bank.

List of Top 5 Public Sector Banks

State bank of India: State bank of India is the largest banking and financial services company in
India, by almost every parameter – revenues, profits, assets, market capitalization etc. SBI
provides a range of banking products through its vast network in India and overseas, including
products aimed at NRIs. The State Bank Group, with over 16000 branches, has the largest branch
network in India.

Bank of Baroda: Bank of Baroda is the third largest public sector bank in India. It offers a wide
range of banking products and financial services to corporate and retail customers through a
variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of
investment banking, credit cards and asset management.

Punjab National Bank: Punjab national bank is the second largest government-owned
commercial bank in India with about 5000 branches across 764 cities. The bank has been ranked
248th biggest bank in the world by the Bankers Almanac, London.

IDBI Bank: IDBI (Industrial Development Bank of India Limited) is one of India’s leading
public sector banks and 4th largest Bank in overall ratings. It was established in 1964 by an Act
of Parliament to provide credit and other facilities for the development of the fledgling Indian
industry.

Bank of India: BOI is the 5th largest public sector bank in all over the India with about 3140
branches including 27 branches outside India. It was established on 7th September 1906. BOI is
a founder member of SWIFT in India.

Recently, all public sector and private sector bank of India provides online banking facilities to
their customers to make banking service more convenient and easy.

Source : Letmeget

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http://www.bankingindiaupdate.com/general.html

StRECENT HISTORY OF INDIAN BANKING

Indian banking system, over the years has gone through various phases after establishment of Reserve
Bank of India in 1935 during the British rule, to function as Central Bank of the country. Earlier to creation
of RBI, the central bank functions were being looked after by the Imperial Bank of India. With the 5-year
plan having acquired an important place after the independence, the Govt. felt that the private banks may
not extend the kind of cooperation in providing credit support, the economy may need. In 1954 the All
India Rural Credit Survey Committee submitted its report recommending creation of a strong, integrated,
State-sponsored, State-partnered commercial banking institution with an effective machinery of branches
spread all over the country. The recommendations of this committee led to establishment of first Public
Sector Bank in the name of State Bank of India on July 01, 1955 by acquiring the substantial part of share
capital by RBI, of the then Imperial Bank of India. Similarly during 1956-59, as a result of re-organisation
of princely States, the associate banks came into fold of public sector banking.

Another evaluation of the banking in India was undertaken during 1966 as the private banks were still not
extending the required support in the form of credit disbursal, more particularly to the unorganised sector.
Each leading industrial house in the country at that time was closely associated with the promotion and
control of one or more banking companies. The bulk of the deposits collected, were being deployed in
organised sectors of industry and trade, while the farmers, small entrepreneurs, transporters ,
professionals and self-employed had to depend on money lenders who used to exploit them by charging
higher interest rates. In February 1966, a Scheme of Social Control was set-up whose main function was
to periodically assess the demand for bank credit from various sectors of the economy to determine the
priorities for grant of loans and advances so as to ensure optimum and efficient utilisation of resources.
The scheme however, did not provide any remedy. Though a no. of branches were opened in rural area
but the lending activities of the private banks were not oriented towards meeting the credit requirements
of the priority/weaker sectors.

On July 19, 1969, the Govt. promulgated Banking Companies (Acquisition and Transfer of Undertakings)
Ordinance 1969 to acquire 14 bigger commercial bank with paid up capital of Rs.28.50 cr, deposits of
Rs.2629 cr, loans of Rs.1813 cr and with 4134 branches accounting for 80% of advances. Subsequently
in 1980, 6 more banks were nationalised which brought 91% of the deposits and 84% of the advances in
Public Sector Banking. During December 1969, RBI introduced the Lead Bank Scheme on the
recommendations of FK Nariman Committee.
Meanwhile, during 1962 Deposit Insurance Corporation was established to provide insurance cover to the
depositors.

In the post-nationalisation period, there was substantial increase in the no. of branches opened in
rural/semi-urban centres bringing down the population per bank branch to 12000 appx. During 1976,
RRBs were established (on the recommendations of M. Narasimham Committee report) under the
sponsorship and support of public sector banks as the 3rd component of multi-agency credit system for
agriculture and rural development. The Service Area Approach was introduced during 1989.

While the 1970s and 1980s saw the high growth rate of branch banking net-work, the consolidation phase
started in late 80s and more particularly during early 90s, with the submission of report by the
Narasimham Committee on Reforms in Financial Services Sector during 1991.

In these five decades since independence, banking in India has evolved through four distinct phases:

Foundation phase can be considered to cover 1950s and 1960s till the nationalisation of banks in 1969.
The focus during this period was to lay the foundation for a sound banking system in the country. As a
result the phase witnessed the development of neces sary legislative framework for facilitating re-
organisation and consolidation of the banking system, for meeting the requirement of Indian economy. A
major development was transformation of Imperial Bank of India into State Bank of India in 1955 and
nationalisation of 14 major private banks during 1969.

Expansion phase had begun in mid-60s but gained momentum after nationalisation of banks and
continued till 1984. A determined effort was made to make banking facilities available to the masses.
Branch network of the banks was widened at a very fast pace covering the rural and semi-urban
population, which had no access to banking hitherto. Most importantly, credit flows were guided towards
the priority sectors. However this weakened the lines of supervision and affected the quality of assets of
banks and pressurized their profitability and brought competitive efficiency of the system at a low ebb.

Consolidation phase: The phase started in 1985 when a series of policy initiatives were taken by RBI
which saw marked slowdown in the branch expansion. Attention was paid to improving house-keeping,
customer service, credit management, staff productivity and profitability of banks. Measures were also
taken to reduce the structural constraints that obstructed the growth of money market.

Reforms phase The macro-economic crisis faced by the country in 1991 paved the way for extensive
financial sector reforms which brought deregulation of interest rates, more competition, technological
changes, prudential guidelines on asset classification and income recognition, capital adequacy,
autonomy packages etc.

BANK NATIONALISATION & PUBLIC SECTOR BANKING

Organised banking in India is more than two centuries old. Till 1935 all the banks were in private sector
and were set up by individuals and/or industrial houses which collected deposits from individuals and
used them for their own purposes. In the absence of any regulatory framework, these private owners of
banks were at liberty to use the funds in any manner, they deemed appropriate and resultantly, the bank
failures were frequent.

Move towards State ownership of banks started with the nationalisation of RBI and passing of Banking
Companies Act 1949. On the recommendations of All India Rural Credit Survey Committee, SBI Act was
enacted in 1955 and Imperial Bank of India was transferred to SBI. Similarly, the conversion of 8 State-
owned banks (State Bank of Bikaner and State Bank of Jaipur were two separate banks earlier and
merged) into subsidiaries (now associates) of SBI during 1959 took place. During 1968 the scheme of
‘social control’ was introduced, which was closely followed by nationalisation of 14 major banks in 1969
and another six in 1980.

Keeping in view the objectives of nationalisation, PSBs undertook expansion of reach and services.
Resultantly the number of branches increased 7 fold (from 8321 to more than 60000 out of which 58% in
rural areas) and no. of people served per branch office came down from 65000 in 1969 to 10000. Much of
this expansion has taken place in rural and semi-urban areas. The expansion is significant in terms of
geographical distribution. States neglected by private banks before 1969 have a vast network of public
sector banks. The PSBs including RRBs, acount for 93% of bank offices and 87% of banking system
deposits.

NDIAN BANKING SYSTEM Indian banking system comprises Reserve Bank of India, other apex
banking institutions such as NABARD (Agriculture Financing), National Housing Bank (Housing),
Export Import Bank of India (Export-Import), Commercial Banks (Public Sector Banks, Private
Sector Banks, Foreign Banks) Regional Rural Banks, Co-operative Banks, Development
Financial Institutions such as IDBI, ICICI, IFCI etc. and other financial intermediaries (LIC, GIC,
UTI etc).

A Apex Institutions:
1 Reserve Bank of India
2 National Bank for Agriculture and Rural Development
3 National Housing Bank
4 Export Import Bank of India

B Commercial Banks
a Public Sector Banks - 27
a SBI and associates
1 State Bank of India
2 State Bank of Hyderabad
3 State Bank of Indore
4 State Bank of Patiala
5 State Bank of Saurashtra
6 State Bank of Mysore
7 State Bank of Travancore
8 State Bank of Bikaner & Jaipur

b Nationalised Banks
1 Allahabad Bank
2 Andhra Bank
3 Bank of Baroda
4 Bank of India
5 Bank of Maharashtra
6 Corporation Bank
7 Canara Bank
8 Central Bank of India
9 Dena Bank
10 Indian Bank
11 Oriental Bank of Commerce
 12 Indian Overseas Bank
13 Punjab & Sind Bank
14 Punjab National Bank*
15 Syndicate Bank
16 Union Bank of India
17 United Bank of India
18 UCO Bank
19 Vijaya Bank
*New Bank of India merged with PNB on 04.09.93

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