Home General Knowledge BANKING G.K.
Saturday, 18 February 2012 03:01


Banking in India

Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India in 1955.

File:Scheduled banking structure in India.png


Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company that issues stock and requires shareholders to be held liable for the company's debt) It was not the first though. That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla.

When the American Civil War stopped the supply of cotton to Lancashire from the Confederate States, promoters opened banks to finance trading in Indian cotton. With large exposure to speculative ventures, most of the banks opened in India during that period fey and lost interest in keeping deposits with banks. Subsequently, banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century.

Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Pondicherry, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center.

The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has survived to the present and is now one of the largest banks in India.

Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities.

The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments."

The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.

The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South Canara ( South Kanara ) district. Four nationalised banks started in this district and also a leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking".

During the First World War (1914–1918) through the end of the Second World War (1939–1945), and two years thereafter until the independence of India were challenging for Indian banking. The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian economy gaining indirect boost due to war-related economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in the following table:


Number of banks
that failed

Authorised capital
(Rs. Lakhs)

Paid-up Capital
(Rs. Lakhs)


























The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included:

The Reserve Bank of India, India's central banking authority, was established in April 1934, but was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).[1]

In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India".

The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.


Despite the provisions, control and regulations of Reserve Bank of India, banks in India except the State Bank of India or SBI, continued to be owned and operated by private persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry. Indira Gandhi, then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The meeting received the paper with enthusiasm.

Thereafter, her move was swift and sudden. The Government of India issued an ordinance ('Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969')) and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. These banks contained 85 percent of bank deposits in the country. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969.

A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.


In the early 1990s, the then Narasimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks.

The next stage for the Indian banking has been set up with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%,at present it has gone up to 74% with some restrictions.

The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks.All this led to the retail boom in India. People not just demanded more from their banks but also received more.

Currently (2010), banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true.

With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As, takeovers, and asset sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them.

In recent years critics have charged that the non-government owned banks are too aggressive in their loan recovery efforts in connection with housing, vehicle and personal loans. There are press reports that the banks' loan recovery efforts have driven defaulting borrowers to suicide.

Adoption of banking technology

The IT revolution had a great impact in the Indian banking system. The use of computers had led to introduction of online banking in India. The use of the modern innovation and computerisation of the banking sector of India has increased many fold after the economic liberalisation of 1991 as the country's banking sector has been exposed to the world's market. The Indian banks were finding it difficult to compete with the international banks in terms of the customer service without the use of the information technology and computers.

Number of branches of scheduled banks of India as of March 2005

The RBI in 1984 formed Committee on Mechanisation in the Banking Industry (1984)[6] whose chairman was Dr C Rangarajan, Deputy Governor, Reserve Bank of India. The major recommendations of this committee was introducing MICR Technology in all the banks in the metropolis in India. This provided use of standardized cheque forms and encoders.

In 1988, the RBI set up Committee on Computerisation in Banks (1988)[8] headed by Dr. C.R. Rangarajan which emphasized that settlement operation must be computerized in the clearing houses of RBI in Bhubaneshwar, Guwahati, Jaipur, Patna and Thiruvananthapuram. It further stated that there should be National Clearing of inter-city cheques at Kolkata,Mumbai, Delhi, Chennai and MICR should be made Operational.It also focused on computerisation of branches and increasing connectivity among branches through computers.It also suggested modalities for implementing on-line banking.The committee submitted its reports in 1989 and computerisation began form 1993 with the settlement between IBA and bank employees' association.

In 1994, Committee on Technology Issues relating to Payments System, Cheque Clearing and Securities Settlement in the Banking Industry (1994) was set up with chairman Shri WS Saraf, Executive Director, Reserve Bank of India. It emphasized on Electronic Funds Transfer (EFT) system, with the BANKNET communications network as its carrier. It also said that MICR clearing should be set up in all branches of all banks with more than 100 branches.

Committee for proposing Legislation On Electronic Funds Transfer and other Electronic Payments (1995) emphasized on EFT system. Electronic banking refers to DOING BANKING by using technologies like computers, internet and networking,MICR,EFT so as to increase efficiency, quick service,productivity and transparency in the transaction.

Number of ATMs of different Scheduled Commercial Banks Of India as on end March 2005

Apart from the above mentioned innovations the banks have been selling the third party products like Mutual Funds, insurances to its clients. Total numbers of ATMs installed in India by various banks as on end March 2005 is 17,642. The New Private Sector Banks in India is having the largest numbers of ATMs which is fol off site ATM is highest for the SBI and its subsidiaries and then it is followed by New Private Banks, Nationalised banks and Foreign banks. While on site is highest for the Nationalised banks of India.































List of banks in India


Central bank

  • Reserve Bank of India


State Bank of India & associates (also nationalized)

  • State Bank of India
  • State Bank of Bikaner & Jaipur
  • State Bank of Hyderabad
  • State Bank of Indore (Now merged into State Bank of India)
  • State Bank of Mysore
  • State Bank of Patiala
  • State Bank of Saurashtra (Now merged into State Bank of India)
  • State Bank of Travancore


Nationalized banks

  • Allahabad Bank
  • Andhra Bank
  • Bank of Baroda
  • Bank of india
  • Bank of Maharashtra
  • Canara Bank
  • Central Bank of India
  • Corporation Bank
  • Dena Bank
  • IDBI Bank
  • Indian Bank
  • Indian Overseas Bank
  • Oriental Bank of Commerce
  • Punjab & Sind Bank
  • Punjab National Bank
  • Syndicate Bank
  • UCO Bank
  • Union Bank of India
  • United Bank of India
  • Vijaya Bank


Old private sector banks

  • Catholic Syrian Bank
  • City Union Bank
  • Dhanlaxmi Bank
  • Federal Bank
  • Jammu & Kashmir Bank
  • Karnataka Bank
  • Karur Vysya Bank
  • Nainital Bank
  • Lakshmi Vilas Bank
  • South Indian Bank


New private sector banks

  • Axis Bank (Formerly UTI Bank)
  • HDFC Bank
  • ICICI Bank
  • IndusInd Bank
  • ING Vysya Bank
  • Kotak Mahindra Bank
  • Yes bank


Foreign banks operating in India

  • ABN AMRO Bank N.V. (Now merged with RBS)
  • Abu Dhabi Commercial Bank
  • American Express Bank
  • Bank Internasional Indonesia
  • Bank of America NA
  • Bank of Ceylon
  • Bank of Nova Scotia (Scotia Bank)
  • Bank of Tokyo Mitsubishi UFJ
  • Barclays Bank PLC
  • BNP Paribas
  • Calyon Bank
  • Chinatrust Commercial Bank
  • Citibank N.A.
  • DBS Bank
  • Deutsche Bank AG
  • HSBC
  • JPMorgan Chase Bank
  • Krung Thai Bank
  • Mashreq Bank psc
  • Mizuho Corporate Bank
  • Royal Bank of Scotland
  • Shinhan Bank
  • Société Générale
  • Sonali Bank
  • Standard Chartered Bank
  • State Bank of Mauritius
  • UBS
  • VTB 

Co-operative Banks

Non-Scheduled Urban Co-operative Banks

List of Non-Scheduled Urban Co-operative Bank as on 31-3-2010 as per Reserve Bank of India:

Indian Banks with business outside India

List of subsidiaries of Indian Banks abroad as on November 30, 2007:


Main Location

Adarsh Co-Operative Bank Ltd.,


Vishweshwar Sahakari Bank Ltd.,


Sadhna Sahakari Bank Ltd.,


co-operative Apex Bank Gorakhpur

Sanmitra Sahakari Bank Ltd.,


Deogiri Nagari Sahakari Bank Ltd.,


Shri Chhatrapati Rajashi Shahu Urban Co op Bank Ltd.,


Ajantha Urban Co op Bank Ltd.,


Jalore Nagarik Sahakari Bank Ltd.


Name of the Bank

Name of the Centre

SBI (Canada) Ltd.

Toronto, Vancouver, Mississauga

SBI (California) Ltd.

Los Angeles, Artesia, San Jose (Silicon Valley)

SBI Finance Inc.

Delaware, U.S.A.

SBI International (Mauritius)

Mauritius (Off-shore Bank)

SBI (China) Ltd.


Bank of Baroda (Uganda) Ltd.


Bank of Baroda (Kenya) Ltd.


Bank of Baroda (Ghana) Ltd.

Accra, Ghana

Bank of Baroda (U.K.) Nominee Ltd.

London, United Kingdom

Bank of Baroda (Hong Kong) Ltd.

Hong Kong (Converted into Restricted Licensed Bank)

Bank of India Finance (Kenya) Ltd.


IOB Properties Pte Ltd.


Bank of Baroda (Botswana) Ltd.

Gaborone, Botswana

Bank of Baroda (Guyana) Inc.

Georgetown, Guyana (South America)


London (UK)

ICICI Bank Canada Ltd

Toronto (Canada)

Bank of Baroda (Tanzania) Ltd.


Bank of Baroda (United Arab Emirate)

Dubai, Abu Dhabi, Ras Al Khaimah, Deira, Dammam, Salalah, Al Ain

Bank of Baroda

Muscat, Oman

Bank of Baroda

Brussels, Belgium

ICICI Bank Eurasia LLC


PT Bank Indomonex


Indian Ocean International Bank Ltd. (IOIB)

Port Louis, Mauritius

Punjab National Bank International Limited (PNBIL)

London, United Kingdom

Bank of Baroda (Trinidad and Tobago) Limited

Trinidad & Tobago

PT Bank Swadesi Tbk


Bank of Baroda (Trinidad and Tobago) Limited

Trinidad & Tobago


Foreign banks with business in India

Banks with branches in India.

  • ABN AMRO Bank N.V. - Royal Bank of Scotland
  • Abu Dhabi Commercial Bank Ltd
  • American Express Bank
  • Antwerp Diamond Bank
  • Arab Bangladesh Bank
  • Bank International Indonesia
  • Bank of America
  • Bank of Bahrain & Kuwait
  • Bank of Ceylon
  • Bank of Nova Scotia
  • Bank of Tokyo Mitsubishi UFJ
  • Barclays Bank
  • BNP Paribas
  • Calyon Bank
  • ChinaTrust Commercial Bank
  • Citibank
  • DBS Bank
  • Deutsche Bank
  • HSBC (Hongkong & Shanghai Banking Corporation)
  • JPMorgan Chase Bank
  • Krung Thai Bank
  • Mashreq Bank
  • Mizuho Corporate Bank
  • Shinhan Bank
  • Société Générale
  • Sonali Bank
  • Standard Chartered Bank
  • State Bank of Mauritius
  • UBS


Foreign Banks with Representative Offices in India

  • American Banks
    • Bank of New York
    • Wachovia Bank
    • Northern Trust
  • Australian Banks
    • Commonwealth Bank
    • National Bank Australia
    • Westpac Banking Corporation
  • Austrian Banks
    • Raiffeisen Bank International A.G.
  • Belgian Banks
    • Fortis Bank.
    • K.B.C. Bank N.V.
  • Canadian Banks
    • Royal bank of Canada
  • UAE Banks
    • Emirates Bank International
  • French Banks
    • Credit Industriel et Commercial
    • Natixis
  • German Banks
    • Bayerische Hypo und Vereinsbank
    • Commerzbank
    • Dresdner Bank
    • DZ Bank AG Deutsche Zentral – Genossenschafts Bank
    • HSH Nordbank
    • Landesbank Baden – Wurttemberg
  • Irish Banks
    • DEPFA Bank
  • Italian Banks
    • Banc Intesa Banca Commerciale Italiana
    • Banca di Roma
    • Banca Populare Di Verona E Novara
    • Banca Popolare di Vicenza
    • UBI Banca – Unione di Banche Italiane
    • Monte Dei Paschi Di Sienna
    • Sanpaolo IMI Bank
    • Uni Credito Italiano
  • Nepalese Banks
    • Everest Bank
  • Portuguese Banks
    • Caixa Geral de Depositos
  • Russian Banks
    • Vnesheconombank
    • Promsvyazbank
  • South African banks
    • First Rand Bank
  • South Korean Banks
    • Woori Bank
  • Spanish Banks
    • CaixaBank S.A. (LaCaixa)
    • Banco de Sabadell
    • Banco Bilbao Vizcaya Argentaria
  • Sri Lankan Banks
    • Hatton National Bank
  • Swiss Banks
    • Credit Suisse
    • Zurcher Kantonal Bank








Last Updated on Thursday, 03 May 2012 04:11