The document discusses the history and evolution of banking in India through five phases: 1) Pre-Independence phase which saw the establishment of the first banks like Bank of Bengal. 2) Pre-nationalization phase from 1947-1969 which saw an increase in rural banking. 3) Expansion phase from 1969-1984 where 14 major commercial banks were nationalized and branches expanded rapidly. 4) Consolidation phase from 1985-1991 focused on strengthening public sector banks through policy reforms. 5) Restructuring phase from 1992 onward introduced liberalization and licensing of private banks and foreign banks in India.

1. PRESENTED BY:
GAGANDEEP KAUR (6)
M.COM (HONS.) 4

2.  The term ‘Bank’ seems to have originated
and/or derived from different sources like-
 Germanic word ‘banck’
 French word ‘banque’ and
 Italian word ‘banco’
 Germanic word ‘banck’ which means a joint
stock fund or heap.
 Italian word ‘banco’ refers to a bench at which
the money changers used to change one kind
of money into another and transact their
banking business.

3.  According to Banking Regulation Act,”
Banking means accepting for the purpose of
lending or investment of deposits of money
from the public, repayable on demand or
otherwise and withdrawable by cheque,draft,
order or otherwise”.

4.  A bank is a financial institution which deals
with deposits and advances and other related
services. It receives money from those who
wants to save in the form of deposits and it
lends money to those who need it.

5.  Banking can be defined as the business
activity of accepting and safeguarding money
deposits from individuals and entities called
savers, and then lending out the same money
to borrowers in order to earn a profit.

6.  Following functions of banks explain the need of
bank and its importance:
 To provide the security to the savings of
customers.
 To control the supply of money and credit.
 To encourage public confidence in the working of
the financial system, increase savings speedily
and efficiently.
 To avoid focus of financial powers in the hands of
a few individuals and institutions.
 To set equal norms and conditions (i.e. rate of
interest, period of lending etc) to all types of
customers.

7.  Banking in India has evolved through five
distinct phases. Each phase could be
separated from the other by a landmark
development in the sphere of Banking Sector.
 Phase I –Pre-independence Phase (up to
1947)
 Phase II-Pre-nationalization Phase (1947-
1969)
 Phase III-Expansion Phase (1969-84)
 Phase IV-Consolidation Phase (1985-91)
 Phase V-Restructuring Phase (1992 onwards)

8.  Banking began with the foundation of the Agency
houses in Calcutta and Bombay in 18 century.
 The Bank of Hindustan was established in 1770
and due to the financial crisis, it was closed in
1832.
 The most significant achievement of this period
was emergence of three Presidency Banks: Bank
of Bengal (1809), Bank of Bombay (1840) with a
capital of Rs.52 lakhs, and Bank of Madras
(1843) with a capital of Rs. 30 lakhs.
 Establishment of Joint Stock Banks like,
Allahabad Bank of India 1865, Alliance Bank of
Simala 1894, and other Banks started gaining
grounds by 1900.

9.  Emergence of new Banks like, Bank of India
1906, Bank of Baroda 1909, Union Bank of India
1911 and Central Bank of India 1911 came into
existence.
 Amalgamation of three Presidency Banks into
Imperial Banks also known as State Bank of India
was formed in 1921.
 Establishment of Reserve Bank of India took
place in 1935 under the Reserve Bank of India
Act, in 1934.
 The Reserve Bank of India (RBI) was established
with a view to manage the currency and credit of
the country by acting as a banker to Commercial
Banks and Government.

10.  At the time of independence, there were 648
Banks in the Indian Union with a total of 4820
Branch Offices.
 In January 1949, the Reserve Bank of India was
nationalized.
 The State Bank of India and its subsidiaries
increased their rural base substantially during
the decade 1960‟s.
 At the end of 1961, 2944 Banking Offices were
located in 222 towns having a population of less
than 50,000 and above, and 2,024 offices in 1,060
places having a population of less than 50,000.

11.  In July 1969, the Government of India
Nationalized the 14 biggest Commercial
Banks with deposit base of not less than Rs.
500 million.
Central bank of India Punjab national bank
Bank of Maharashtra Sindh bank
Indian overseas bank United bank of india
Bank of baroda UCO bank
Dena bank Bank of india
Union bank Canara bank
Allahabad bank Indian bank

12.  Particularly during this period, a strong-minded
effort was made to take Banks to the interior of
villages to rural people.
 During this period, Banks provided extensive
publicity about various services provided by them
especially to the customers in the rural areas.
 A new Banking policy with a view to geographical
diversification of Banking facilities under the name
of Lead Bank Scheme was announced in 1969.
 According to this scheme, entire country was
divided into districts and each Nationalized Bank
was allotted a district where it was supposed to
play a leading role in extending branches.

13.  In the first decade after nationalization of the 14
Commercial Banks, 21,000 new Bank Offices
were opened raising the total number of
functioning offices from 8,262 in June 1969 to
30,202 by the end of June 1979.
 Regional Rural Banks were set up in September
1975, as third component of the multi- agency
credit system for agriculture and rural
development.
 Another important development during the year
1978-79 was the formulation of a new branch
licensing policy for the three year period (1979-
81).

14.  The overall objective of the expansion phase
was to expand the Banking facilities in deficit
areas and to reduce the inter-state and inter-
district disparities in order to support
development activities.
 The expansion phase was marked by
geographical and numerical increase of Bank
branches.
 This phase developed some weaknesses in
the areas like poor customer services, low
profitability, overstaffing and growing non-
performing assets.

15.  In 1985, a series of policy measures were
introduced by Reserve Bank of India to
strengthen Public Sectors Banks.
 Emphasis was made to pay special attention
to internal control, customer services, credit
management, staff productivity, and
profitability of the Banks.
 From early 1990‟s Public Sector Banks
stopped rural expansion and concentrated on
urban and metropolitan Banking.

16.  In 1990‟s, Narasimha Rao Government
embarked on a policy of liberalization and
licensing of a small number of Private Sector
Banks.
 The Private Sector Banks were also known as
New Generation Tech-savvy Banks.
 The next stage for Indian Banking Sector
proposed relaxation in the norms related to
the Foreign Direct Investment, in which
foreign investors in Banks were given voting
rights with some restrictions.

17.  Particularly this phase witnessed the liberal
entry of Private and Foreign Banks,
operational freedom, deregulation of the
interest rates, reduction in the statutory
reserve requirements of Statutory Liquidity
Ratio (SLR) and Cash Reserve Ratio (CRR).
 Another significant instance of this phase was
the entry of mass computerization to handle,
the increased volumes of business effectively
and to improve customer services.
 This will lead to Voluntary retirement in
Nationalised banks.

18.  The Banking Sector reforms were undertaken
in India from 1992 onwards.
 These reforms primarily aimed at the safety
and soundness of financial system and to
make the Banking Industry strong, efficient,
and competitive.
 This called for improvement in allocation and
operational efficiency of the Banks.
 Thus, Indian Banking Industry was
categorized into Non-Scheduled Banks and
Scheduled Banks.

19.  In year 1998, Banks started developing new
delivery channels like- automated teller
machine (ATM), phone banking, internet
banking, any branch banking.
 Internet Banking became popular and Banks
offered facilities like- account enquiry, money
transfer, requests, mail alerts, railway ticketing
and bill payment.
 Core Banking Solutions (CBS) created an
environment where the entire Bank‟s
operations could be controlled from a
centralized hub.