The Complete Banking History

From 1770 to 2024: The Complete Banking History

The Big Picture: The Indian banking sector is not a modern invention. It started way back in 1770 with the Bank of Hindustan.

Over 250 years, the system has transformed from a loose collection of British-owned banks to a massive, government-regulated powerhouse. To crack banking exams (IBPS/SBI) or CGL/UPSC, you must visualize this journey in three distinct phases.

PHASE 1: The Pre-Independence Era (1770 - 1947)

This was an era of volatility. More than 600 banks were registered, but many failed due to fraud or lack of capital. The system was purely capitalist and served only the British elite.

1770: The Beginning

The Bank of Hindustan was established in Calcutta (Kolkata). It was the first bank in India, managed by Europeans. It later ceased operations in 1832.

1806 - 1843: The Presidency Banks

The East India Company established three major banks to handle their finances. These were crucial because they had the right to print currency notes until 1861.

• Bank of Calcutta (1806): Later renamed Bank of Bengal.
• Bank of Bombay (1840).
• Bank of Madras (1843).

KEY EVOLUTION

The Birth of SBI's Ancestor (1921)

In 1921, the three Presidency Banks (Bengal, Bombay, Madras) were merged to form a single entity:
The Imperial Bank of India.

(Remember this: Imperial Bank is the father of State Bank of India).

[Image of diagram showing evolution of SBI from presidency banks to Imperial bank to SBI]

1935: Enter the Regulator (RBI)

Before 1935, India had no central bank. The Hilton Young Commission (also called the Royal Commission) recommended a central authority.

• RBI Act: Passed in 1934.
• Operation: Started on April 1, 1935.
• Initial HQ: Calcutta (Shifted to Mumbai in 1937).
• Ownership: Initially, it was a private entity!

PHASE 2: Post-Independence & Consolidation (1947 - 1969)

After 1947, the focus shifted to nation-building. The government realized that private banks were not helping rural India (farmers/villagers).

Year	Event	Significance
1949	Nationalization of RBI	The RBI became a fully government-owned entity (Transfer of Public Ownership Act, 1948). It became the "Banker to the Government."
1949	Banking Regulation Act	Gave RBI the power to license, inspect, and regulate all other banks in India.
1955	Birth of SBI	On the recommendation of the A.D. Gorewala Committee, the "Imperial Bank of India" was nationalized and renamed the State Bank of India (SBI) on July 1, 1955.

PHASE 3: The Nationalization Era (1969 - 1991)

This is the most politically significant phase. Prime Minister Indira Gandhi observed that banks were controlled by large industrial houses and were ignoring agriculture.

July 19, 1969: The Big Bang

Overnight, 14 Major Private Banks (with deposits > ₹50 Crore) were nationalized. This included big names like PNB, Canara Bank, and Bank of Baroda. The aim was "Mass Banking" instead of "Class Banking."

April 15, 1980: The Second Wave

6 More Banks (with deposits > ₹200 Crore) were nationalized (e.g., Andhra Bank, Vijaya Bank). This brought the total count of Public Sector Banks (PSBs) to roughly 20+.

PHASE 4: Liberalization & Modern Reforms (1991 - Present)

Following the 1991 economic crisis, India opened its doors. The Narasimham Committee (I & II) was set up to reform the banking sector. They recommended:

1. allowing new private banks (Entry of HDFC, ICICI, Axis in 1994).
2. Computerization of banks.
3. Reduction of SLR and CRR to release more money for lending.

CURRENT STATUS (2024)

The Mega Mergers

To create "Global Sized Banks," the government started merging smaller PSBs into larger anchor banks in 2019-2020.

• PNB + OBC + United Bank = PNB (2nd Largest).
• Canara + Syndicate = Canara Bank.
• Union Bank + Andhra + Corp Bank = Union Bank.
• Indian Bank + Allahabad Bank = Indian Bank.

Result: Today, India has only 12 Public Sector Banks.

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Revision Flashcards

Imperial Bank of India

Formed in which year?

1921

By merging Bank of Bengal, Bombay, and Madras. Later became SBI in 1955.

First Nationalization

How many banks?

14 Banks

On July 19, 1969. The threshold was deposits above ₹50 Crore.

Hilton Young Commission

Recommended what?

Formation of RBI

The Reserve Bank of India was set up in 1935 based on this commission's report.

First Bank in India

Name and Year?

Bank of Hindustan

Established in 1770 in Calcutta.

Exam-Style MCQs

Q1. Which committee recommended the formation of the State Bank of India (SBI)?

A) Hilton Young Commission

B) A.D. Gorewala Committee

Correct! Also known as the 'All India Rural Credit Survey Committee'.

C) Narasimham Committee

Q2. In which year was the Reserve Bank of India (RBI) Nationalized?

A) 1935

B) 1947

C) 1949

Correct! Specifically, on January 1, 1949. Before this, it was privately owned.

Q3. How many Public Sector Banks (PSBs) are there in India currently (2024)?

A) 21

B) 12

Correct! After the mega-mergers of 2020, the count came down to 12.

C) 19

Part of the Indian Economics Master Series.