Over the years, there has been a gradual increase in financial awareness among Indian citizens. People have begun scoping out investment opportunities through both, traditional instruments like Bonds, Fixed Deposits and Mutual funds, and newer means like crypto. However, while you’re busy updating yourself with what’s new in the fiscal world, what about its rich history?
To date, before independence, India has made several leaps of progress in terms of its banking systems. History and civics textbooks recount the creation of the Indian democratic constitution, along with our fundamental rights and the numerous provisions. Nonetheless, you probably never got the chance to learn about the evolution of banking in India.
During the pre-independence era, India already had a fair amount of banks present, with this period establishing over 600 banks. The first bank to be erected was the Bank of Hindustan (1770-1832), and the Oudh Commercial Bank (1881-1958) was the first commercial bank set up in India. Though, between 1913-1948, there was a decline in the growth of banks.
Several banks underwent sporadic failures, eventually forcing the government to take action. The Banking Regulation Act, 1949, was introduced by the government to oversee the operations of these banks and to prevent collapses in the financial sector.
With the implementation of the Banking Regulation Act, the government of India began nationalising banks, including the Reserve Bank of India in 1949. Before the Act, all major banks were privately held, giving the privileged families who own them, an undue advantage. Additionally, this encouraged people in rural areas to start approaching banks and deterred them from engaging with moneylenders.
Here’s a brief overview of the impact of nationalisation:
After the 1990s, the Indian banking systems have been steadily progressing with the government promoting foreign investment. This introduced foreign banks and private investors into the Indian economy, leading to innovative inventions like ATMs and e-banking, among others. Though, the most notable development in this period has been the introduction of private sector banks.
Around the time the government formed the Narasimham Committee in 1991 to stabilise nationalised banks, they also approved of private banks. Eventually, the RBI and government of India began to treat private and public sector banks equally. Over time, payment banks were also established.
Today there are 4 different types of banks available in India –
With your foundation of the financial history of India bolstered, it’s time you divulge deeper into the complex and intriguing world of finance!