Origin, Growth and
development of banks in India
The word Bank has been originated from many
words. There is no single word or answer to this origin of the word ‘Bank’.
According to some economists, the word ‘Bank’ has been originated from the
German word ‘Banck’ which means heap or mound or joint stock fund. From this,
the Italian word ‘Ban co’ has been derived. It means heap of money. But
according to this group, the word bank is derived from the Greek word ‘Banque’
which mean a ‘bench’. It refers to a place where money-lenders and money
changers used to sit and display their coins and transact business. Thus the
origin of the word ‘Bank’ can be traced as follows.
Bank → Banco → Banque → Bank
Banking industry in India has a long history.
It has travelled a long path to assume its present form. The banking industry
in Indian started with small money lenders and has now large joint stock world
class banks in its fold. The growth of banks in India is discussed below over
two eras:
A)
Pre-Independence Period
B)
Post-Independence Period
A)
Pre-Independence Period: Banking in its crude from is as old as
authentic history. All throughout the period of India history, indigenous
bankers and money lenders are recorded to have existed and carried on the
business of banking and money lending on a large scale. Between 2000 and 1400
BC during the Vedic Period records of deposits and lending are found. Renowned
Hindu Law giver Manu has dealt with the matter of deposits and pledges in
section of his work. According to Manu – “a sensible man should deposit has
money with a person of good family, or good conduct, will acquainted with the
Law, veracious, having many relatives, wealthy and honourable”. Reference is
also made to the same in Kautilya’s Arthashastra. The Indian banks enjoyed
considerable public confidence and this can be gauged from fact that hundis
were used from the days of Mahabharata. During the Moghul Period, the
indigenous bankers were most prominent in connection with the financing of
trade and use of instruments of trade. From the early Vedic period right
through the Moghul period as well as that of the East India Company’s rule
until the middle of the 19th Century, indigenous bankers were the
hub of the Indian Financial System providing credit not only to the trade but
also to the Government.
Agency House: The indigenous bankers lost
their importance to a certain with the advent of the English traders in India.
The starting of modern banking in India can be traced to the beginning of the
East India Company’s trade relation with our country. The growing trade
Interest of the English merchants and non-existence of any organised banks in
India, many English Agency Houses which were essentially trading company
started to add banking business to their activities. The bank of Hindustan, was
the earliest bank started under European direction in India. The banking
business of Agency House could not continue for long. Most of these Houses
failed because of their complete disregard towards the principle of banking
business. The Bank of Hindustan could not withstand the failure of its parent
from and was closed down in 1832.
Presidency Banks: The banking business of Agency
House which survived and continued to carry on trade and banking together was
progressively taken over by the Presidency Banks. The three Presidency
Banks viz.:
a) The Bank of Bengal (1809);
b) The Bank of Mumbai (1840); and
c) The Bank of Chennai (1843)
were established under the Charter of the East
India Company. These Banks acted as banker to the East India Company at
Kolkata, Mumbai and Chennai and performed Central Banking functions for their
respective areas.
Principle of Limited Liability: A land-mark
development took place in the year 1860. It was in this year the principle of
“limited liability” was first applied to the joint stock banks. Till then
little or so banking legislation existed in India. Many banks has arised like
mushrooms and failed, mostly due to speculation, mismanagement and fraud on the
part of the management. The introduction of the principle of limited liability
promoted the growth of banks in India. By 1895, there were 15 joint stock banks
with limited liability in India.
The Swadeshi Movement: Swadeshi movement
prompted Indians to start many new institutions. The number of joint stock
banks increased remarkably during 1906-1913. The peoples Bank of India Limited,
the Bank of India Limited, the Central Bank of India Limited, Indian Bank
Limited and the Bank of Baroda Limited were setup during that period.
Imperial Bank of India: The three Presidency
Banks were amalgamated into the Imperial Bank of India which was brought into
existence on 27th January, 1921, by the Imperial Bank of India Act,
1920. The liability of shareholders of the Imperial Bank was limited like that
of shareholders of other banks registered under the Company Act. However the
word “limited” did not from a part of the name of the Bank.
B)
Post-Independence Period: After independence, Government has taken
most important steps in regard of Indian Banking Sector reforms. In 1955, the
Imperial Bank of India was nationalized and was given the name “State Bank of
India”, to act as the principal agent of RBI and to handle banking transactions
all over the country. It was established under State Bank of India Act, 1955.
In 1959, the 'State Bank of India' (Subsidiary
Banks) Act was passed by which the public sector banking was further extended.
The following banks were made the subsidiaries of State Bank of India:
(i) The State Bank of Bikaner
(ii) The State Bank of Jaipur
(iii) The State Bank of Indore
(iv) The State Bank of Mysore
(v) The State Bank of Patiala
(vi) The State Bank of Hyderabad
(vii) The State Bank of Saurashtra
(viii) The State Bank of Travancore
These banks forming subsidiary of State Bank
of India was nationalized in1960. In 1963, the first two banks were amalgamated
under the name of "The State Bank of Bikaner and Jaipur".
On 19th July, 1969, 14 major Indian commercial
banks of the country were nationalized. In 1980, another six banks were
nationalized, and thus raising the number of nationalized banks to20. Seven
more banks were nationalized with deposits over 200 Crores. Later on, in the year
1993, the government merged New Bank of India with Punjab National Bank. It was
the only merger between nationalized banks and resulted in the reduction of the
number of nationalized banks from 20 to 19. Till the year1980 approximately 80%
of the banking segment in India was under government’s ownership. On the
suggestions of Narsimhan Committee, the Banking Regulation Act was amended in
1993 and hence, the gateways for the new private sector banks were opened.