Banks are the pillars of an economy. Their primary function is to:
- Accept deposits from the public (and pay interest on them).
- Grant loans to individuals and businesses (and charge interest on them).
The difference between the interest charged on loans and the interest paid on deposits forms the bank's profit.
First Bank of India
The first bank in India, the Bank of Hindustan, was established in 1770 by Alexander and Company. It was based on the European banking pattern and operated until 1832 without specific regulations.
The Presidency Banks
The British established three major banks, known as the Presidency Banks:
- Bank of Calcutta (1806), later renamed to Bank of Bengal (1809).
- Bank of Bombay (1840).
- Bank of Madras (1843).
On 27 Jan 1921, these three banks were merged to form the Imperial Bank of India, which acted as a central bank. Later, on 1 July 1955, it was nationalized and became the State Bank of India (SBI).
Nationalization of Banks
After independence, the Indian government began nationalizing banks to gain more control over credit delivery.
- 1969: 14 banks with assets over ₹50 crore were nationalized.
- 1980: 6 more banks with assets over ₹200 crore were nationalized.
At its peak, India had (14+6+SBI+6 subsidiaries). Today, after several mergers, there are .
1991 LPG Reforms
In the 1980s, the Gulf War led to high oil prices, leaving India with foreign reserves for only 3 weeks. This crisis prompted the LPG (Liberalization, Privatization, Globalization) reforms in 1991 under Finance Minister Dr. Manmohan Singh and Prime Minister P.V. Narasimha Rao.
Regional Rural Banks (RRBs)
The Narsimhan committee recommended the establishment of RRBs to serve rural areas. The first RRB, Prathama Gramin Bank, was established in 1975 in Moradabad, U.P., sponsored by Syndicate Bank. The RRB Act was passed in 1976.
Shareholding in RRBs:
- Central Government: 50%
- State Government: 15%
- Sponsored Bank: 35%
- First Bank Fully Owned by Indians: Punjab National Bank (PNB), founded in 1894 in Lahore by Lala Lajpat Rai and Dyal Singh Majithia.
- First Swadeshi Bank: Central Bank of India, established in 1911 in Calcutta.
- First Bank to Open Foreign Branch: Bank of India (founded 1906), opened a branch in London in 1946.
- Oldest Public Sector Bank: Allahabad Bank, established on April 24, 1865.
1. Who is known as the Father of Economy?
2. When were the three Presidency Banks merged to form the Imperial Bank of India?
3. The Imperial Bank of India was nationalized to form the State Bank of India (SBI) in which year?
4. How many banks were nationalized in the first phase in 1969?
5. What is the shareholding percentage of the Central Government in Regional Rural Banks (RRBs)?
6. Which was the first bank fully owned by Indians?