Since 1947 to 2018 - Banking Sector

The history of modem banking in India started in the first half of 18th Century with the establishment of three presidency banks under Presidency Bank's act 1876 i.e. Bank of Calcutta latter renamed as Bank of Bengal (1806) Bank of Bombay (1840) and Bank of Madras (1843). In 1921, all presidency banks were amalgamated to form the Imperial Bank of India. The Reserve Bank was established on 1 April 1935, after which Imperial Bank was authorized to function as a sole agent of the RBI at all places in India where the RBI had no branches.

After India’s independence the entire banking was under the ownership and control of the big industry house and it was ridden with the problem of skewed credit, as agricultural credit was hard to avail. In 1955, the RBI acquired control of the Imperial Bank of India and re-christened them as State Bank of India.

In 1969, fourteen major banks were Nationalised and another six in 1980. This was done to bring the control of banks under the purview of the Government of India. With the nationalization of commercial banks, the country witnessed massive expansion of branch network especially in rural areas. This helped in mobilising deposits and stepping up the overall savings rate of the economy. Some other social controls were also implemented such as increasing priority sector lending targets. There was a shift of emphasis from industry to agriculture.

From the mid-1960s to the early 1990s, the Government of India increasingly used the banking system as an instrument to finance its own and the operational freedom of the banks were also curtailed. Further, rates of return were low by international standards, the capital base had eroded, NPAs increased, customer service was below expectation

In 1991, Indian economy faced a major balance of payment crisis. The foreign exchange resources had almost disappeared. Fiscal deficit was high and the inflation rate reached double digits. The deregulation of entry, branch de-licensing, phased deregulation of interest rates, and permission to public sector banks to raise a maximum of 49% of equity in the capital market were among key measures aimed at improving bank efficiency. In 1993, RBI permitted private entry into the banking sector.

In recent past, an extensive program of banking reforms has been followed to strengthen market institutions which is plagued with the problem of NPA and allow greater autonomy to the banks.
Thank You
Regards
Author- Arushi Singh
Kautilya
IBS Mumbai