Evolution of Banking
Ancient Era
The concept of usury was first mention as an Indian texts in the Vedas (2000–1400 BCE). The word usurer was translated by the word kusidin. The usury was also mention in the Sutras (700–100 BCE) and the Jatakas (600–400 BCE. Also, during those period, texts began to condemn usury. Vasishtha forbade Brahmin and Kshatriya varnas from participating in usury. By the 2nd century CE, usury seems to have become more acceptable. Even Manusmriti considered usury as an acceptable means of leading a livelihood or acquiring wealth. It also considers lending the money above a certain rate, different ceiling rates for different caste, a grave sin. Also the Jatakas mention the existence of loan deeds. Those were known as rnapatra or rnapanna. Even the Dharmashastras supported the use of loan deeds. Kautilya has also mentioned the usage of loan deeds. Loans deeds were also known as rnalekhaya.
Later during the Mauryan period (321–185 BCE), an instrument called adesha was in use, which was an order on a banker directing him to pay the sum on the note to a third person, which corresponds to the definition of a modern bill of exchange. The considerable use of these instruments has been recorded. In large towns, merchants also used to give letters of credit to one another.
Medival Era
During the Mughal era the use of loan deeds continued and these were known as dastawez. At that time several types of loans deeds have been recorded. The dastawez-e-indultalab was payable on demand and dastawez-e-miadi was payable after a stipulated time an the use of payment orders by royal treasuries, called barattes,. There are also records of Indian bankers using issuing bills of exchange on foreign countries. The evolution of hundis, a type of credit instrument, also occurred during this period and remain in use.
The Banking sector in India came into exsistence in the last decade of the 18th century.The first banks were the bank of Hindustan, which was established in 1770 and liquidated in 1829–32; and the General Bank of India, established in 1786 but was again unsuccessful and thus failed in 1791.
The largest bank, and the oldest which is still in existence, is the State Bank of India (SBI).It originated and started working as the Bank of Calcutta in mid-June 1806. In 1809, it was renamed as the Bank of Bengal. This was one of the three banks founded by a presidency government, the other two were the Bank of Bombay in 1840 and the Bank of Madras in 1843.In 1865 ,the Allahabad Bank was established and still functioning today, is the oldest Joint Stock bank in India, it was not the first though. That honour belongs to the Bank of Upper India, which was established in 1863 and survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla. After then the Foreign banks also started appearing, espeacially in Calcutta, in the 1860s. Grindlays Bank opened its first branch in Calcutta in 1864. The Comptoir d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches followed in Madras and Pondicherry, then a French possession. HSBC established itself in Bengal in 1869. Calcutta became the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking centre.
The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1894, which has survived to the present and is now one of the largest banks in India . During the period of 1906 and 1911 noticed the establishment of banks inspired by the Swadeshi movement. This movement inspired local businessmen and political figures to found banks of and for the Indian community. Many new banks were established and survived to the present such as Catholic Syrian Bank, The South Indian Bank, Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.
Also the Bank of Bengal , Bank of Madras , Bank of Bombay were merged in 1921 to form the Imperial Bank of India, which after India's independence, became the State Bank of India in 1955. For many years the presidency banks had acted as quasi-central banks, as did their successors, until the Reserve Bank of India was established in 1935, under the Reserve Bank of India Act, 1934.
Post Independence
During 1938-46, bank branch offices trebled to 3,469 and deposits quadrupled to ₹962 crore. Nevertheless, the partition of India in 1947 badly impacted the economies of Punjab and West Bengal, immobilizing banking activities for some months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted in greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included:
The Reserve Bank of India, India's central banking authority, was established in April 1935, but was nationalized on 1 January 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).
In 1949, the Banking Regulation Act was enacted, which empowered the Reserve Bank of India (RBI) to regulate, control, and inspect the banks in India.
The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.
In 1960, the State Banks of India was given control of eight state-associated banks under the State Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate banks In 1969 , 14 major private banks was nationalised by the Indian government,among them the biggest was Bank of India. In 1980, 6 more private banks were nationalised. These nationalised banks are the majority of lenders in the Indian economy. Thus the banking was sector was mainly dominated by them at that time. The Indian banking sector is broadly classified into two parts i.e scheduled and non-scheduled banks. The scheduled banks are those included under the 2nd Schedule of the Reserve Bank of India Act, 1934. The scheduled banks are further classified into: nationalised banks; State Bank of India and its associates; Regional Rural Banks (RRBs); foreign banks; and other Indian private sector bank.
In the early 1990s, the ruling government undertake the policy of liberalisation i.e providing licensing to small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank , which later amalgamated with Oriental Bank of Commerce, UTI Bank (since renamed Axis Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, re-energize the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks.
The next stage for the Indian banking has been set up, with proposed relaxation of norms for foreign direct investment. All foreign investors in banks may be given voting rights that could exceed the present cap of 10% at present. It has gone up to 74% with some restrictions.
By 2013, the Indian Banking Industry employed 1,175,149 employees and had a total of 109,811 branches in India and 171 branches abroad and manages an aggregate deposit of ₹67,504.54 billion (US$940 billion or €820 billion) and bank credit of ₹52,604.59 billion (US$730 billion or €640 billion). The net profit of the banks operating in India was ₹1,027.51 billion (US$14 billion or €13 billion) against a turnover of ₹9,148.59 billion (US$130 billion or €110 billion) for the financial year 2012–13.Pradhan Mantri Jan – Dhan Yojana (Accounts Opened As on 12.01.2015)
Pradhan Mantri Jan Dhan Yojana, English: Prime Minister's People Money Scheme) is a scheme for comprehensive financial inclusion launched by the Prime Minister of India, Narendra Modi, in 2014. Run by Department of Financial Services, Ministry of Finance, on the inauguration day, 1.5 Crore (15 million) bank accounts were opened under this scheme. By 15 July 2015, 16.92 crore accounts were opened, with around ₹20,288.37 crore (US$2.8 billion) were deposited under the scheme, which also has an option for opening new bank accounts with zero balance.