Development of Banking in India

Development of Banking in India

Enactment of the RBI Act 1935 gave birth to scheduled banks in India.

The first bank which was established with Indian ownership and management was the Oundh Commercial Bank, formed in 1881, followed by the Ayodhya Bank in 1884, the Punjab National Bank in 1894 and Nedungadi Bank in 1899.

The United Bank of India was formed in 1950 by the merger of four existing commercial banks.


Evolution of SBI

The origin of the State Bank of India goes back to the first decade of the nineteenth century with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806.

Three years later the bank received its charter and was re-designed as the Bank of Bengal (2 January 1809).

The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed the Bank of Bengal.

These three banks remained at the apex of modern banking in India till their amalgamation as the Imperial Bank of India on 27 January 1921.

The three banks were governed by royal charters, which were revised from time to time.

Each charter provided for a share capital, four-fifth of which were privately subscribed and the rest owned by the provincial government.

The members of the board of directors, which managed the affairs of each bank, were mostly proprietary directors representing the large European managing agency houses in India.

The rest were government nominees, invariably civil servants, one of whom was elected as the president of the board.

The business of the banks was initially confined to discounting of bills of exchange or other negotiable private securities, keeping cash accounts and receiving deposits and issuing and circulating cash notes.

Loans were restricted to Rs. one lakh and the period of accommodation confined to three months only.

A major change in the conditions of operation of the Banks of Bengal, Bombay and Madras occurred after 1860.

With the passing of the Paper Currency Act of 1861, the right of note issue of the presidency banks was abolished and the Government of India assumed from 1 March 1862 the sole power of issuing paper currency within British India.

By 1876, the branches, agencies and sub agencies of the three presidency banks covered most of the major parts and many of the inland trade centres in India.

While the Bank of Bengal had eighteen branches including its head office, seasonal branches and sub agencies, the Banks of Bombay and Madras had fifteen each.

The presidency Banks Act, which came into operation on 1 May 1876, brought the three presidency banks under a common statute with similar restrictions on business.


Imperial Bank of India

The presidency Banks of Bengal, Bombay and Madras with their 70 branches were merged in 1921 to form the Imperial Bank of India.

The establishment of the Reserve Bank of India as the central bank of the country in 1935 ended the quasi-central banking role of the Imperial Bank. The latter ceased to be bankers to the Government of India and instead became agent of the Reserve Bank for the transaction of government business at centres at which the central bank was not established.

When India attained freedom, the Imperial Bank had a capital base (including reserves) of Rs.11.85 crores, deposits and advances of Rs.275.14 crores and Rs.72.94 crores respectively and a network of 172 branches and more than 200 sub offices extending all over the country.


In 1951, when the First Five Year Plan was launched, the development of rural India was given the highest priority.

The commercial banks of the country including the Imperial Bank of India had till then confined their operations to the urban sector and were not equipped to respond to the emergent needs of economic regeneration of the rural areas.

In order, therefore, to serve the economy in general and the rural sector in particular, the All India Rural Credit Survey Committee recommended the creation of a state-partnered and state-sponsored bank by taking over the Imperial Bank of India, and integrating with it, the former state-owned or state-associate banks.

An act was accordingly passed in Parliament in May 1955 and the State Bank of India was constituted on 1 July 1955.

More than a quarter of the resources of the Indian banking system thus passed under the direct control of the State.

Later, the State Bank of India (Subsidiary Banks) Act was passed in 1959, enabling the State Bank of India to take over eight former State-associated banks as its subsidiaries (later named Associates).

The RBI had acquired 92 per cent stake in them.


Associate Banks of SBI

State Bank of Mysore (founded in 1913)

State Bank of Patiala (founded in 1917)

State Bank of Hyderabad (founded in 1941)

State Bank of Travancore (founded in 1945)

State Bank of Bikaner & Jaipur (founded in 1963)

Bharatiya Mahila Bank (founded 2013)

The banks which are merged are—

State Bank of Saurashtra (merged in 2008)

State Bank of Indore (merged in 2010)


Nationalisation of Banks—

On 19th July, 1969, 14 major Indian commercial banks, with a deposit of 50 crore or more, of the country were nationalized.

[1] Allahabad Bank

[2] Bank of Baroda

[3] Bank of India

[4] Bank of Maharashtra

[5] Central Bank of India

[6] Canara Bank

[7] Dena Bank

[8] Indian Bank

[9] Indian Overseas Bank

[10] Punjab National Bank

[11] Syndicate Bank

[12] Union Bank

[13] United Bank of India

[14] United Commercial Bank


After 11 years of the first phase of bank nationalization, on 15th April 1980, six more banks, with deposits more than Rs. 200 crore, were nationalized.

[1] Andhra Bank

[2] Corporation Bank

[3] New Bank of India (In 1993 merged with Punjab National Bank)

[4] Oriental Bank of Commerce

[5] Punjab and Sind Bank

[6] Vijaya Bank