The document outlines the history and evolution of the Indian banking system from 1770 to the present, highlighting key institutions, nationalization phases, and significant reforms. It emphasizes the importance of the financial system in promoting economic development through savings mobilization, resource allocation, and innovation. Recent developments include the impact of the COVID-19 pandemic, advancements in digital payments, and ongoing discussions about cryptocurrency regulation.

1. PR E S E N T E D B Y - S A R I T A YA D A V
Financial Markets and
Institutions
Unit 1

2. Syllabus
Microsoft Office
Word Document

3. Indian Banking history

4. Indian Banking History: 1770-1947
 The first banking institution was the Bank of Hindustan established in 1770 and it was
the first bank at Calcutta under European management. It was liquidated in 1830-32.
 The British East India Company granted the Bank of Calcutta, Bank of Bombay, and
Bank of Madras licenses to establish the three Presidency banks. For long years, they
operated in India as if they were central banks.
 The Bank of Calcutta established in 1806 immediately became the Bank of Bengal.
 These three banks joined in 1921 to become the Imperial Bank of India.
 Later, in 1955, the Imperial Bank of India was nationalized in 1955 and was named
The State Bank of India, which is currently the largest Public sector Bank.
 Before the Reserve Bank of India was founded in 1935 under the RBI Act, of 1934, the
presidency banks and their successors served as quasi-central banks for a long time.
 Consequently, the State Bank of India is the country’s oldest bank.
 During this time, as many as 600 banks were founded.

5. Banks which were established during the Pre-Independence period

6. Post Independence Period (1947-1991)
In 1969
 Allahabad Bank
 Bank of India
 Bank of Baroda
 Bank of Maharashtra
 Central Bank of India
 Canara Bank
 Dena Bank
 Indian Overseas Bank
 Indian Bank
 Punjab National Bank
 Syndicate Bank
 Union Bank of India
 United Bank
 UCO Bank
In 1980
 Andhra Bank
 Corporation Bank
 New Bank of India
 Oriental Bank of Comm.
 Punjab & Sind Bank
 Vijaya Bank

7. In 2019 Mergers of Banks

8. IFS

9.  It plays a vital role in economic development of a
country.
 It encourages both savings and investment.
 It links savers and investors.
 It helps in capital formation.
 It helps in allocation of risk.
 It facilitates expansion of financial market
FEATURES OF INDIAN FINANCIAL SYSTEM

10.  Pooling of Funds.
 Capital Formation.
 Facilitates Payment.
 Provides Liquidity.
 Short and Long-Term Needs.
 Risk Function.
 Better Decisions.
 Finances Government Needs, and.
 Economic Development.
Functions of Financial System

11. Role of IFS in Economic Development
 Mobilization of Savings
 Efficient Resource Allocation
 Investment Promotion
 Capital Formation
 Risk Management and Diversification
 Entrepreneurship Support
 Infrastructure Development
 Employment Generation
 Financial Inclusion
 Economic Stability
 Innovation and Technology

12. Overview of IFS since 1951
1951-1980s: Early Development and
Nationalization
 Industrial Policy Resolution (1956): The government adopted a
socialist approach, emphasizing public sector dominance in key industries
and sectors, including finance.
 Nationalization of Banks (1969 and 1980): To promote financial
inclusion and control private monopolies, major banks were nationalized
in two phases. This expanded the reach of banking services across the
country.
 Formation of Development Financial Institutions (DFIs):
Institutions like Industrial Development Bank of India (IDBI), National
Bank for Agriculture and Rural Development (NABARD), and Export-
Import Bank of India (EXIM Bank) were established to provide long-term
financing to industries, agriculture, and exports.

13. 1990s: Liberalization and Structural Reforms
 Economic Liberalization (1991): India faced a balance of
payments crisis, leading to a shift in economic policy. Reforms were
initiated, including liberalization of trade, investment, and the
financial sector.
 Banking Sector Reforms: Private and foreign banks were allowed
to enter the market, reducing the dominance of public sector banks.
The concept of "priority sector lending" was introduced to ensure
credit flow to marginalized sectors.
 Securities Market Reforms: The Securities and Exchange Board of
India (SEBI) was established in 1992 to regulate the securities market
and protect investor interests.
 Financial Sector Reforms: Interest rate controls were gradually
dismantled, allowing market forces to determine interest rates. This
enhanced the efficiency of resource allocation.

14. 2000s: Technological Advancements and Inclusive Growth
 Technology Integration: The financial sector witnessed
technological advancements, including the adoption of
online banking, electronic payments, and the establishment
of the National Electronic Funds Transfer (NEFT) and Real-
Time Gross Settlement (RTGS) systems.
 Microfinance Revolution: Microfinance institutions
gained prominence, providing small loans and financial
services to rural and underserved populations, contributing
to financial inclusion.
 Foreign Direct Investment (FDI) Inflows: India
attracted increasing FDI inflows, contributing to economic
growth and infrastructure development.

15. 2010s: Focus on Financial Inclusion and
Regulatory Strengthening
 Jan Dhan Yojana (2014): A national financial inclusion
scheme aimed to provide every household with access to a
bank account, insurance, and a debit card.
 Goods and Services Tax (GST): Implemented in 2017,
this unified tax system aimed to simplify taxation and boost
economic efficiency.
 Insolvency and Bankruptcy Code (IBC): Introduced in
2016, this code aimed to streamline the resolution process for
stressed assets and improve the ease of doing business.
 Demonetization (2016): The government invalidated
high-denomination currency notes to combat black money
and promote digital transactions.

16. 2020s: Ongoing Developments and Challenges
 COVID-19 Pandemic: The pandemic posed significant
economic challenges, leading to stimulus measures and policy
adjustments to support businesses and individuals.
 Banking Sector Recapitalization: The government
announced measures to recapitalize public sector banks,
addressing their capital adequacy and financial stability.
 Digital Payment Advancements: Digital payment platforms
and mobile wallets gained prominence, furthering the shift
towards a cashless economy.
 Crypto Regulation Debate: The discussion on regulating
cryptocurrencies gained momentum, with the Reserve Bank of
India expressing concerns about their impact on financial
stability.

17. Financial Sector Reforms
 Reduction in Statutory Liquidity Ratio (SLR) and Cash Reserve
Ratio (CRR)
 End of Administered Interest Rate Regime
 Prudential Norms: High Capital Adequacy Ratio
 Competitive Financial System
 Non-Performing Assets (NPA) and Income Recognition Norm
 Elimination of Direct Credit Controls
 Promoting Micro-Finance to Increase Financial Inclusion
 Extension of Swabhimaan Scheme
 Foreign Exchange Reforms
 Capital Market Reforms
 Insurance Sector Reforms
 Pension Sector Reforms
 Financial Inclusion Initiatives

18.  Financial Services
 Financial Assets/Instruments
 Financial Markets
 Financial institutions
Components of financial System

19. Financial institutions
 Commercial Banks
 Cooperative Banks
 Development Banks
 Non-Banking Financial Companies (NBFCs)
 Insurance Companies
 Mutual Funds
 Stock Exchanges

20. Financial Markets
 Capital Market
 Money Market
 Foreign Exchange Market
 Commodity Market
 Derivatives Market

21. Financial Instruments
 Equity Shares
 Preference Shares
 Debentures
 Bonds
 Mutual Fund Units
 Derivatives