The First Bank in India was the ‘Bank of Hindustan’ started in 1770 by Alexander & Co. and got closed in 1782.


The term bank is either derived from Italian word “Banca” or from a French word “Banque” . Both mean a Bench or money exchange table. Chanakya in his Arthashastra written in about 300 B.C. has mentioned about receiving deposits and advancing loans. A temple of Babylon as early as 2000 B.C. practice of safe keeping through banks was done. Around 3900 B.C., Egypt adopted a banking service utilizing cows as units of exchange. Jain scriptures also mention the names of two bankers who built the famous Dilware Temples of Mount Abu during 1197 and 1247 A.D.

  • The first bank called the ‘Bank of Venice’ was established in Venice, Italy in 1157 to finance the monarch in his wars.
  • In early 1349, the business of banking was carried out in Barcelona.
  • Modern banking began with the English goldsmiths only after 1640.
  • First private bank - Bank of England-1694.
There are Three Phases of Evolution which are as follows:

Phase I- Pre-Independence – Before 1947

Phase II- Post Independence- After 1947

Phase III- Post LPG- After 1991

Evolution of Banking:
  1. The first bank in India was the ‘Bank of Hindustan’ started in 1770 by Alexander & Co. and got closed in 1782
  2. The General Bank of India was set up in 1786 and but got closed in 1791.
  3. Then the presidency banks were opened which includes Bank of Calcutta (1806) / Bank of Bengal (1809), Bank of Bombay (1840) and  Bank of Madras (1843)
  4. 1st Bank with Limited Liability was Oudh Commercial Bank. This was established in 1881 at Faizabad, failed in 1958.
  5. The first Indian-owned bank called as Allahabad Bank was set up in 1865 in Allahabad.
  6. The Punjab National Bank was established in 1895.
  7. The Bank of India founded in 1906 in Mumbai.
  8. 1st Indian Commercial Bank (ICB) which was wholly owned and managed by Indians was Central Bank of India which was established In 1911.
  9. Central Bank of India is Called India’s First Truly Swadeshi Bank.
  10. Canara Bank, Indian Bank, Central Bank of India, Bank of Baroda and Bank of Mysore were established between 1906 and 1913 under Indian ownership.
  11. In 1921, Presidency Banks were merged to form Imperial Bank of India, it was Private Entity.
  12. RBI establish in 1935 on the recommendation of Hilton-Young Commission.
  13. RBI was nationalized in 1949 
  14. Enactment of Banking Regulation Act was done in 1949
  15. In 1955, Imperial Bank of India was Nationalized and renamed as STATE BANK OF INDIA, on the recommendation of A.D.GOREWALA COMMITTEE
  16. Nationalization of SBI Subsidiaries (7 Banks) was done in 1959.
  17. In 1969, 14 Major banks were Nationalized.
  18. In 1980, 7 more banks were Nationalized.
  19. Narasimham Committee in 1974 recommended for the establishment of Regional Rural Banks (RRB) and as a result in 1975, RRBs were established with an objective to extend the amount of credit to the rural section of the society.
  20. NABARD was established in 1982 to support agriculture-related work.
  21. EXIM bank was built in 1982 for export and import.
  22. National Housing Bank was set up in 1988 for the Housing sector
  23. SIDBI was established in 1990 for small-scale industries.
  24. Narasimham Committee in 1991 recommended the private sector players into banking system.
  25. RBI gave license to 10 banks and only 5 were able to survive- ICICI, HDFC, Axis, IndusInd, DCB.
  26. In 1998, Narasimham Committee recommended for more private players and RBI gave license to Kotak Mahindra Bank and Yes Bank.
  27. In 2015, IDFC and Bandhan Bank got its license
  28. In 2015, RBI gave license to 11 entities to launch Payments bank and 10 entities received approval to start Small Finance Banks.
  29. In 2018, SBI and its Subsidiaries were merged.
  30. In December 2018, IDFC Bank and Capital First merged as IDFC Capital First Bank.
  31. January 2019, Cabinet approves the merger of Vijaya Bank, Dena Bank and Bank of Baroda;
Role of Commercial banks in India
  • Commercial banks are banks that are in the Schedule II of RBI Act, 1934.
  • A commercial bank is a profit based financial institution. 
  • They carry out the normal business of banking such as accepting deposits, giving out loans other banking services such as overdraft facilities and electronic transfer of funds.
Key Acts that are governing the functioning of Indian banking system
  1. Reserve Bank of India Act, 1934 - Rules, regulations, directions and guidelines with respect to banking  and financial services.
  2. Banking Regulation Act, 1949 - Provides a framework for supervision and regulation of all banks.
  3. Foreign Exchange Management Act 1999 (FEMA)- Regulates cross-border exchange transactions by Indian entities, including banks.
  4. Companies Act, 2013- Prescribes the corporate governance rules for banks in the country.
  5. SEBI Regulations, 2015- Listing obligations and disclosures.
  6. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act,2002 (SARFAESI Act)- Sale of Stressed Assets by Banks.
  7. Insolvency and Bankruptcy Code, 2016 (IBC)- One-stop solution for resolving insolvencies/bankrupt, loan defaulters.
  1. To regulate the issue of Bank notes and keeping of required reserves.
  2. To have a modern monetary policy framework
  3. To maintain price stability
  4. To ensure financial stability
  5. To regulate and supervise the financial system and its constituents, the money, debt and foreign exchange segments of the financial markets in India and the payment and settlement system.
  6. To supervise and undertake initiatives for the financial sector consisting of Commercial banks, Financial institutions, Non-Banking Financial Companies (NBFCs).
  7. To develop a robust, efficient and diversified financial system
Types of Bank
  1. Scheduled Banks
  2. Non- scheduled banks
  3. Public Sector Bank
  4. Private Sector Bank
  5. Regional Rural Banks
  6. Foreign Bank
  7. Co-operative Banks
  8. Payments Bank
  9. Small Finance Banks
Monetary Policy as on 30.04.2020
  1. Repo rate  – 4.40%
  2. Reverse repo rate  – 3.75%
  3. Bank Rate  – 4.65%
  4. Inflation  2.30%
  5. CRR  - 3%
  6. SLR  - 18%
  7. Marginal Standing Facility Rate  4.65%
Edited by Dhivya

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