Beginning of Modern Banking in India
Modern banking in India started in the mid-18th century. Some of the earliest banks established during this period were the Bank of Hindustan, founded in 1770, and the General Bank of India, established in 1786. However, both banks did not survive for long. The Bank of Hindustan was liquidated between 1829 and 1832, while the General Bank of India failed in 1791.
Formation of Presidency Banks
The State Bank of India (SBI), which is now the largest bank in India, has its origins in the Bank of Calcutta, established in June 1806. In 1809, the bank was renamed the Bank of Bengal.
During this period, three major banks known as the Presidency Banks were formed:
- Bank of Bengal (1806)
- Bank of Bombay (1840)
- Bank of Madras (1843)
These banks played an important role in the early banking system of India.
Creation of the Imperial Bank of India
In 1921, the three Presidency Banks were merged to form the Imperial Bank of India. These banks functioned almost like central banks before India had its own central banking authority.
Later, the Reserve Bank of India (RBI) was established in 1935 under the Reserve Bank of India Act, 1934, which took over the role of regulating the banking system.
Formation of State Bank of India
After India gained independence, the Imperial Bank of India was transformed into the State Bank of India (SBI) in 1955. This was done to strengthen the banking system and expand banking services across the country.
Later, under the State Bank of India (Subsidiary Banks) Act, 1959, SBI took control of eight associate banks. These associate banks continued operating for several decades before eventually being merged with SBI on 1 April 2017.
Nationalisation of Banks
A major turning point in India’s banking history came with the nationalisation of banks.
- In 1969, the Government of India nationalised 14 major private banks, including Bank of India.
- In 1980, six more private banks were nationalised.
After nationalisation, these public sector banks became the largest lenders in the Indian economy, dominating the banking sector due to their large branch networks and strong presence across the country.
Types of Banks in India
The Indian banking system is broadly divided into scheduled banks and non-scheduled banks.
Scheduled banks are those included in the Second Schedule of the Reserve Bank of India Act, 1934. These banks are further classified into:
- Nationalised banks
- State Bank of India and its associates
- Regional Rural Banks (RRBs)
- Foreign banks
- Private sector banks
Commercial banks include both scheduled and non-scheduled banks and are regulated under the Banking Regulation Act, 1949.
SBI Becomes the Largest Bank
On 1 April 2017, the State Bank of India merged its associate banks into itself. After this merger, SBI became the largest bank in India.
Growth of Banking in India
Today, the banking system in India is considered well-developed in terms of services, products, and reach. However, expanding banking access in rural areas and among poorer sections of society remains a challenge.
To address this, the government has launched several initiatives such as:
- Expanding the branch network of banks
- Strengthening rural finance through the National Bank for Agriculture and Rural Development (NABARD)
- Promoting microfinance and financial inclusion programs
Over the years, India’s banking system has evolved from a few early banks in the 18th century to a large and sophisticated financial system. With strong regulation by the Reserve Bank of India, the sector continues to support economic growth, financial inclusion, and investment in the country.