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The journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below :
The General Bank of India was established in the year 1786. Bank of Hindustan and Bengal Bank came next. The East India Company has established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and it was called as ‘Presidency Banks’. These three banks were merged in 1920 and Imperial Bank of India was come into force which started as private shareholders banks, mostly Europeans shareholders.
Allahabad Bank was established in 1865, first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore. Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up in between 1906 and 1913and in 1935 Reserve Bank of India came into force.
The growth of banking sector was very slow during the first phase and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 small banks at that time. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Act, 1949 which was later changed to Banking Regulation Act 1949 by amending Act of 1965. Reserve Bank of India was vested with wide-ranging powers for the supervision of banking in India as the Central Banking Authority.
Government of India has taken major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalised Imperial Bank of India with extensive banking facilities on a large scale operation in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country. State Bank of India, including its seven subsidiaries was nationalized in 1960, 1969, major process of nationalisation was carried out. It was the effort of the former Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country were nationalised. They are;
Second phase of nationalization Indian Banking Sector Reform was started in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership.
The following are the important steps taken by the Government of India to Regulate Banking Institutions in the Country
After the nationalisation of banks, the branches of the public sector bank India grown to approximately 800% in deposits and advances took a huge jump by 11,000%.
Banking in the brightness of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions.
This phase has introduced many more facilities and changes in the banking sector in its reforms measure. In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalization of banking practices.
The country is rushed with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking are introduced. The entire system became more convenient and speedy. This face has given more importance to time than money. The financial system of India has shown a great deal of flexibility. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries faced. This is all due to a flexible exchange rate system, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have restricted foreign exchange exposure.
For the past three decades India's banking system has several outstanding achievements in its credit. The most striking is its widespread reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country, this is one of the main reasons of India's growth process.
The government's regular policy for Indian bank has paid rich dividends with the nationalization of 14 major private banks of India. Years ago an account holder had to wait for hours at the bank counters or for withdrawing his own money for getting a draft. Today, he has a choice. In those days the most efficient bank transferred money from one branch to other in two days. But now it is very simple as instant messaging. Money has become the order of the day.