Ibdi

A JOURNEY THROUGH BANKING

ORIGIN OF BANKING

Banks are among the main participants of the financial system in India. Banking offers several facilities and opportunities.

Banks in India were started on the British pattern in the beginning of the 19th century. The first half of the 19th century, The East India Company established 3 banks The Bank of Bengal, The Bank of Bombay and The Bank of Madras. These three banks were known as Presidency Banks. In 1920 these three banks were amalgamated and The Imperial Bank of India was formed. In those days, all the banks were joint stock banks and a large number of them were small and weak. At the time of the 2nd world war about 1500 joint stock banks were operating in India out of which 1400 were non- scheduled banks. Bad and dishonest management managed quite a few of them and there were a number of bank failures. Hence the government had to step in and the Banking Company’s Act (subsequently named as the Banking Regulation Act) was enacted which led to the elimination of the weak banks that were not in a position to fulfill the various requirements of the Act. In order to strengthen their weak units and review public confidence in the banking system, a new section 45 was enacted in the Banking Regulation Act in the year 1960, empowering the Government of India to compulsory amalgamate weak units with the stronger ones on the recommendation of the RBI. Today banks are broadly classified into 2 groups namely—

(a) Scheduled banks.

(b) Non-Scheduled banks.

There are three different phases in the history of banking in India:

Pre-Nationalization Era.

Nationalization Stage.

Post Liberalization Era.

1. Pre-Nationalization Era:

In India the business of banking and credit was practiced even in very early times. The remittance of money through Hundies, an indigenous credit instrument, was very popular. The hundies were issued by bankers known as Shroffs, Sahukars, Shahus or Mahajans in different...