Modern Banking in India

Modern banking in India traces its origins to the mid-18th century, with the establishment of early banks such as:

  • Bank of Hindustan (1770), which was liquidated between 1829-32.
  • General Bank of India (1786), which failed in 1791.

The oldest and largest bank still in operation today is the State Bank of India (SBI), which originated as the Bank of Calcutta in 1806. It was renamed the Bank of Bengal in 1809 and eventually merged with two other presidency banks—Bank of Bombay (1840) and Bank of Madras (1843)—in 1921 to form the Imperial Bank of India. After India’s independence, this bank became SBI in 1955.

Key Milestones in Indian Banking:

  • Presidency Banks: Initially, the three presidency banks acted as quasi-central banks.
  • Reserve Bank of India (RBI): Established in 1935, the RBI took over the central banking functions.
  • Nationalisation: In 1969, 14 major private banks were nationalised by the Indian government, and in 1980, 6 more private banks were nationalised, making public sector banks the dominant players in the Indian economy.

Evolution of State Bank of India:

  • State Bank of India (SBI):
    • In 1960, SBI took control of eight state-associated banks under the State Bank of India (Subsidiary Banks) Act, 1959.
    • In 2017, SBI merged these associate banks into itself, becoming the largest bank in India. This merger boosted its global ranking to 236th on the Fortune 500 index.

Classification of Banks:

  • Scheduled Banks: Those included under the 2nd Schedule of the Reserve Bank of India Act, 1934. These include:
    • Nationalised Banks
    • SBI and its Associates
    • Regional Rural Banks (RRBs)
    • Foreign Banks
    • Indian Private Sector Banks
  • Commercial Banks: This term encompasses both scheduled and non-scheduled banks that are regulated under the Banking Regulation Act, 1949.

Insights:

  • Preference for Bank Deposits: The majority of Indian households prefer bank deposits over other investment options, which aligns with the cultural emphasis on financial security and liquidity.
  • The banking sector continues to evolve with technological advancements, but deposits remain a cornerstone of household financial assets in India.