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Banking Overview
The major participants of the
Indian financial system are the commercial banks, the financial institutions (FIs),
encompassing term-lending institutions, investment institutions, specialized financial
institutions and the state-level development banks, Non-Bank Financial Companies (NBFCs)
and other market intermediaries such as the stock brokers and money-lenders. The
commercial banks and certain variants of NBFCs are among the oldest of the market
participants. The FIs, on the other hand, are relatively new entities in the financial
market place.
Historical perspective
Bank of Hindustan, set up in 1870, was the earliest Indian Bank . Banking in India on
modern lines started with the establishment of three presidency banks under Presidency
Bank's act 1876 i.e. Bank of Calcutta, Bank of Bombay and Bank of Madras. In 1921, all
presidency banks were amalgamated to form the Imperial Bank of India. Imperial bank
carried out limited central banking functions also prior to establishment of RBI. It
engaged in all types of commercial banking business except dealing in foreign exchange.
Resrve Bank of India Act was passed in 1934 & Reserve Bank of India (RBI) was
constituted as an apex bank without major government ownership. Banking Regulations Act
was passed in 1949. This regulation brought Reserve Bank of India under government
control. Under the act, RBI got wide ranging powers for supervision & control of
banks. The Act also vested licensing powers & the authority to conduct inspections in
RBI.
In 1955, RBI acquired control of the Imperial Bank of India, which was renamed as State
Bank of India. In 1959, SBI took over control of eight private banks floated in the
erstwhile princely states, making them as its 100% subsidiaries.
RBI was empowered in 1960, to force compulsory merger of weak banks with the strong ones.
The total number of banks was thus reduced from 566 in 1951 to 85 in 1969. In July 1969,
government nationalised 14 banks having deposits of Rs.50 crores & above. In 1980,
government acquired 6 more banks with deposits of more than Rs.200 crores. Nationalisation
of banks was to make them play the role of catalytic agents for economic growth. The
Narsimham Committee report suggested wide ranging reforms for the banking sector in 1992
to introduce internationally accepted banking practices.
The amendment of Banking Regulation Act in 1993 saw the entry of new private sector banks.
Banking Segment in India functions under the umbrella of Reserve Bank of India - the
regulatory, central bank. This segment broadly consists of:
1. Commercial Banks
2. Co-operative Banks
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