History of the Indian Banking System

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History of the Indian Banking System



In today’s post, we will discuss the history of the Indian Banking system. The banking system is the basis of the country’s economy and economic development. It is the most prominent part of the country’s financial sector as it is responsible for the flow of more than 70% of the country’s financial sector.

There have three primary functions of the Indian Banking system.

  1. Payment system operation.
  2. Depositor and keeper of people’s savings.
  3. Issuance of loans to individuals and companies.

The Indian banking system can be classified into two phases

  1. Pre-Independence Phase (1786-1947).
  2. Post-Independence Phase (From 1947 till date).

It can be divided into three phases during the post-independence period.

  1. Pre-nationalization Period (1947 to 1969)
  2. Post nationalization period (1969 to 1991)
  3. From 1991 to the present day is the Liberalization Period.
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Pre-Independence Phase (1786–1947)

The origin of the Indian Banking System was with the establishment of the Bank of Calcutta in 1786.

In the 19th century, the Presidency Banks, the Bank of Bengal, the Bank of Bombay, and the Bank of Madras were established under the charter of the British East India Company.

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In 1935, the Presidency Banks were merged and a new bank named Imperial Bank of India was created.

State Bank of India was formed by the conversion of the name of the Imperial Bank of India.

The first Indian-owned Allahabad Bank was established in 1865 in Allahabad.

In 1895, Punjab National Bank was established.

In 1906 in Mumbai, the Bank of India was established.

Canara Bank, Indian Bank, Central Bank of India, Bank of Baroda, and Bank of Mysore commercial banks were established between 1906 and 1913.

The Indian central bank, RBI was established in 1935 on the recommendation of the Hilton-Young Commission.

The history of the development of the Indian banking system can be divided into the following parts

The history of the development of the Indian banking system

Phase I (inception to 1806)

Before the British rule, there was no special development of banking in the country, it was dominated by money lenders.

In the 18th century, the East India Company established some agency houses in Mumbai and Kolkata; the agency houses functioned like modern banks; these agency houses were financed by the East India Company’s officers and employees.

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India’s first bank based on the European banking system was established in Kolkata in the year 1770 by Alexander and Company in the name of Bank of Hindustan with the help of foreign capital but it soon failed.

Phase II (1806-60)

Three Presidency Banks were set up by private shareholders after the collapse of the Agency Houses in 1813.

Bank of Bengal 1806

Bank of Mumbai 1840

Bank of Madras 1843

The government used to control these three banks, it is noteworthy that in the year 1921, the Imperial Bank of India was established by merging all the three banks, and after nationalization on July 1, 1955, it was renamed as State Bank of India.

Phase III 1860-1973

The passage of the Joint Capital Storm Act in the year 1807 paved the way for the establishment of joint capital banks in India.

Allahabad Bank 1865

Alliance of Shimla 1881

Punjab National Bank 1894

Established in the year 1981 on the basis of limited liability, Awadh Commercial Bank was the first bank to be operated by Indians. The first bank in the Indian country was the ‘Punjab National Bank’.

Bank of India 1906

Bank of Vadodara 1908

Central Bank of India 1911

Bank of Mysore 1913

Phase IV 1983-39


During this period, the First World War 1917 could not be the reason for the development of banks.

In the year 1921, ‘Imperial Bank of India’ was formed by merging three Presidency banks.

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Fifth Stage 1939-46

This period can be called the period of banking expansion, due to the expansion of money generated as a result of the Second World War, the monetary income of the common man increased, hence all the bank deposits increased.

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In order to take advantage of the increasing economic prosperity during the war period, old banks established new branches and new banks were also established.

Sixth phase from 1947 till now

In this year the Reserve Bank of India was nationalized on 9 January 1949.

The Indian Banking Act was passed in the year 1945 to coordinate regulation of Indian banking.

The Imperial Bank of India was partially nationalized on 9 July 1955.

on 19 July 1969, there were nationalized the 14 big banks.

6 banks were nationalized again on 15 April 1980

I hope you have got the best knowledge about the history of the Indian Banking System. any question in your mind then you must comment happily.


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