Banks in India after independence

Banking Sector in India reformed much after independence due to the major steps taken by Indian Government. To provide extensive banking facilities in rural and semi-urban areas, Imperial Bank was changed into State Bank of India and it became the first nationalised bank of India. Thereafter State bank of India started to act as the principal agent of Reserve Bank of India and to handle banking transactions of the Union and State Governments all over the country.

In 1960 seven subsidiary banks of State Bank of India were nationalised.

On 19th July, 1969, major process of nationalisation was carried out and 14 major commercial banks in the country were nationalised. Second phase of nationalisation Indian Banking Sector Reform was carried out in 1980 with seven more banks. As a result 80% of the banking segment in India came under Government ownership.

The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country:

1949 : Enactment of Banking Regulation Act.
1955 : Nationalisation of State Bank of India.
1959 : Nationalisation of SBI subsidiaries.
1961 : Insurance cover extended to deposits.
1969 : Nationalisation of 14 major banks.
1971 : Creation of credit guarantee corporation.
1975 : Creation of regional rural banks.
1980 : Nationalisation of seven banks with deposits over 200 crore.

Due to the nationalisation of banks, the branches of the public sector banks in India rose to approximately 800% in deposits whereas advances took a huge jump by 11,000%.

The nationalisation of the banks by Government of India gave the public implicit faith and immense confidence about the sustainability of these institutions.

How the Banks were set up in India

In modern days nobody can imagine life without banks as banks have become essential part of our daily life. But before 1786, there was no any bank in India. In the year 1786 East India Company first time set up The General Bank of India and that was the beginning of banking in India. Thereafter came Bank of Hindustan and  Bengal Bank. Bank of Bengal, Bank of Bombay and Bank of Madras were established by East India Company in years 1809, 1840 and 1843 respectively. These banks were called Presidency Banks. In the year 1920 Imperial Bank of India was established by amalgamation of these three banks. Imperial Bank of India started as private shareholders banks and most of its shareholders were Europeans.

In the years 1865 and 1894 Allahabad Bank and Punjab National Bank Ltd. were set up. For the period from 1906 to 1913 Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India was established in 1935. After that about 1100 banks, mostly small, started functioning in India. Some of them experienced periodic failures between 1913 and 1948.

Due to increase in the number of banks in India, it became essential to streamline the functioning and activities of commercial banks and the Government of India came up with The Banking Companies Act, 1949. As per amending Act of 1965 (Act No. 23 of 1965) Companies Act, 1949 changed as Banking Regulation Act 1949. . Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority.

Though the number of banks were increasing,  public has lesser confidence in the banks in those days and deposit mobilisation was slow. The savings bank facility provided by the Postal department was treated as safer in comparison of that provided by the banks.