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 the Bank of Hindustan, both of which 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 1925 to form the Imperial Bank of India, which, upon India’s independence, became the State Bank of India.
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. 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 failed. The depositors lost money 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 Pondichery, then a French colony, followed. 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 Bank of Bengal, which later became the State Bank of 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.”
By the 1900s, the market expanded with the establishment of banks such as Punjab National Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai – both of which were founded under private ownership. Punjab National Bank is the first Swadeshi Bank founded by the leaders like Lala Lajpat Rai, Sardar Dyal Singh Majithia. The Swadeshi movement in particular 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.
From World War I to Independence
The period 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:
|Years||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:
In 1948, the Reserve Bank of India, India’s central banking authority, was nationalized, and it became an institution owned by the Government of India.
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.
However, despite these provisions, control and regulations, banks in India except the State Bank of India, continued to be owned and operated by private persons. This changed with the nationalisation of major banks in India on 19th July, 1969.
By the 1960s, the Indian banking industry has become an important tool to facilitate the development of the Indian economy. At the same time, it has emerged as a large employer, and a debate has ensued about the possibility to nationalise the banking industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the GOI in the annual conference of the All India Congress Meeting in a paper entitled “Stray thoughts on Bank Nationalisation.” The paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. 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 9th 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 GOI 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.
The nationalised banks were credited by some, including Home minister P. Chidambaram, to have helped the Indian economy withstand the global financial crisis of 2007-2009.
In the early 1990s, the then Narsimha 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, UTI Bank(now re-named as Axis 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 setup 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 49% 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 (2007), 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 aggresive 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.
PUBLIC SECTOR BANKS IN INDIA
Allahabad Bank: Allahabad Bank is the oldest public sector bank in India with branches all over India. Allahabad Bank India was established in the year 1865.
Andhra Bank: Andhra Bank was founded by Dr.Bhogaraju Pattabhi Sitaramayya. The Bank was registered on 20th November 1923 and commenced business on 28th November 1923 with a paid up capital of Rs 1.00 lakh and an authorised capital of Rs 10.00 lakhs total business as on 31.03.2005 stood at Rs.45,461 Crores and the Bank is rendering services through 1,672 Business Delivery Channels, consisting of 1,168 Branches, 136 Extension Counters, 330 ATMs and 38 Satellite Branches, spread over 21 States and 2 Union Territories as at the end of March, 2005. The Bank has entered into ATM sharing arrangements with IDBI, UTI Bank, SBI, Indian Bank, HDFC Bank, thus offering over 9,000 ATMs spread across the country for use by Customers. Instant Funds Transfer Facility is provided through 566 Branches.
Bank of Baroda: Bank of Baroda started its operation in the year 1908 in Baroda though its Corporate Centre is in Mumbai now. Its mission is “to be a top ranking National Bank of International Standards committed to augment stake holders’ value through concern, care and competence”.
Bank of India: Bank of India, founded on 7th September in the year 1906 was nationalised along with 13 other banks in July 1969. Then its paid-up capital was Rs.50 lakh with only 50 employees and the only office in Mumbai.
Today Bank of India has been spread with 2594 branches including 93 specialised branches controlled by 48 Zonal Offices. Bank of India came up with its maiden public issue in the year 1997 and the total number of shareholders stands to 3,17,890 as on 30/06/2004. Bank of India was the first fully computerised branch among the nationalised banks with ATM facility at the Mahalaxmi Branch, Mumbai is the year 1989. It is an association that has blossomed into a joint venture with BSE, called the BOI Shareholding Ltd. to extend depository services to the stock broking community.
Bank of Maharastra: Bank of Maharashtra was registered in the year 1935 with an authorized capital of Rs 10.00 lakh. It is also known as a common man’s bank. After nationalization in 1969, it expanded rapidly. According to data till 31st March 2004, it has 1276 branches all over India. It is one the largest network of branches by any Public sector bank in the state of Maharashtra.
Canara Bank: Canara Bank in India has a history of nine decades and is the largest public sector banks in India. Canara Bank India has a deposit advance base of Rs.640 bn and Rs 332 bn (figure in the year 2002). Canara Bank of India has a total of 47,843 employees and is spread with 2409 branches throughout the country. Canara Bank India has an exposure to petroleum, engineering, infrastructure, factoring, investment management, venture capital, home finance and securities. Canara Bank entered Forex arena in 1953 with the opening of its first Foreign Exchange Department in Mumbai. The Bank has 5 forex dealing rooms located in Mumbai, New Delhi, Calcutta, Chennai and Bangalore in India and one in London branch. Canbank provides a wide range of services and products like sale and purchase of 7 world currencies, swap currency and forward bookings.
Central Bank of India: Central Bank of India (CBI) was established in 1911. This was the first Indian commercial bank to be wholly owned and managed by Indians. The establishment of the Central Bank of India was the ultimate realisation of the dream of Sir Sorabji Pochkhanawala, founder of the Bank. Sir Pherozesha Mehta was the first Chairman of a truly ‘Swadeshi Bank’.
Corporation Bank: Since 1906, Corporation Bank in India is dedicated to give vast, varied and versatile services to the nation with a comfort and zeal stealing the common say in the Banking Sector, “The Bank of Pride”. Close to hit the mark ‘100 years at your service’, Corporation Bank India has regularly tried to keep a personal touch with customers. Corporation Bank India is one of the well-run Public Sector Bank in India. The key factor of the success of Corporation Bank India is its young and dynamic manpower which gives service with efficiency and dedication. Even in this era of technology and stiff competition, Corp Bank is rapidly growing confidence among its clients.
Corp Bank came out with its Initial Public Offer (IPO) in October 1997. 37.87% of share Capital is presently held by the Public and Financial Institutions. 57.17% of Share Capital is held by the Government of India. On 31.12.2003, the Net Worth of Corporation Bank was Rs.2,755 crore.
Dena Bank: Dena Bank, earlier known as Devkaran Nanjee Banking Company Ltd., was founded on 26th May, 1938 by the family of Devkaran Nanjee. It got nationalised as Public Sector Bank in July 1969 with other 13 Banks as Dena Bank Ltd.
Indian Bank: Indian Bank was established on 15th August 1907 to serve the nation as a part of the Swadeshi movement. It has 1380 Branches spread all over India. The Global deposits of the bank is Rs. 34808 Crores and Net advance to Rs. 18380 Crores (as on 31.03.2005).
Indian Overseas Bank: Indian Overseas Bank (IOB) is a one of the major bank based in Chennai, with over 1,400 domestic branches and 6 branches abroad. Indian Overseas Bank was established in 1937 to encourage overseas banking and foreign exchange operations. The Indian Overseas Bank started simultaneously with three branches. They are:
Indian Overseas Bank Chennai
Indian Overseas Bank Rangoon
Indian Overseas Bank Singapore
From the begining Indian Overseas Bank served Chettinad, Ceylon (Sri Lanka), Burma (Myanmar), Malaya, Singapore, Java, Sumatra and Saigon. In 1960 Indian Overseas Bank absorved five weaker private sector banks including Kulitali Bank.
Oriental Bank of Commerce: Oriental Bank of Commerce India was established in the year 1943 on 19th February in Lahore. After partition, Oriental Bank of Commerce shifted its Registered Office from Lahore to Amritsar paying every rupee to its departing customers. Oriental Bank of Commerce was nationalised on 15th April in 1980. Then OBC bank had 307 branches with Rs. 282.61 crores as deposits and as advance Rs. 152.69.
Punjab & Sind Bank: Punjab & Sind Bank was established in the year 1908 with the principle of helping the weaker section in the society. It is the first bank in Northern India to get ISO 9002 certification for its selected branches. The total business of the Bank stood at Rs. 200525 millions as on March 31, 2004. Punjab & Sind Bank has 760 branches and 131 extension counters. It has opened an exclusive Housing Finance Branch in order to cater the credit need of the house aspirants. To groom the youngsters, it has its own Hockey Academy at Jalandhar. It sponsored 58th National Junior Hockey Championship. It also sponsored the Junior Hockey Team in the 6th Junior World Cup Hockey Championship at Milton Keyenses, England. The team brought Silver Medal to India.
Punjab National Bank: Punjab National Bank with 4497 offices and the largest nationalised bank is serving its 3.5 crore customers with a wide variety of banking services. Punjab National Bank has been ranked 38th amongst top 500 companies by The Economic Times. PNB has earned 9th position among top 50 trusted brands in India.
Syndicate Bank: Syndicate Bank was established in 1925 in Udupi in coastal Karnataka with a capital of Rs.8000/- The bank collected as low as 2 annas daily at the doorsteps of the depositors through its Agents under its Pigmy Deposit Scheme started in 1928. This scheme is the Bank’s brand equity today and the Bank collects around Rs. 2 crore per day under the scheme. The Bank is well equipped in the areas of information technology, knowledge and competition. The Bank has launched an ambitious technology plan called Centralised Banking Solution (CBS) whereby 200 of their strategic branches with their ATMs are being networked nationwide over a 3 year period.
UCO Bank: UCO Bank is in service since 1943. It has approximately 2000 Service Units in India. It also operates in Hongkong and Singapore having Correspondents / Agency arrangements all over the world. It undertakes Foreign Exchange Business in more than 50 Centres in India and have Foreign Exchange Dealing Operations at 4 Centres.
Headquartered in Kolkata, the Bank has 34 Regional Offices spread all over India. Its missions is “to be a Top-class Bank to achieve sustained growth of business and profitability, fulfilling socio-economic obligations, excellence in customer service; through upgradation of skills of staff and their effective participation making use of state-of-the-art technology”
Union Bank of India: Union Bank of India was inaugurated by Mahatma Gandhi eight decades ago. Union Bank of India is having more than 600 branches and extension counters all over the country. Nearly 351 ATMs are installed. Online Tele banking facility is availble for its customers. Today there are more than 26,000 employees in Union Bank of India. In addition to regular banking facilities of Union Bank of India, today customer can also avail variety of other services like cash management service, insurance, mutual funds, Demat from the Bank.
Union Bank of India is a Public Sector Unit with 60.85% Share Capital held by the Government of India.
United Bank of India: United Bank of India was formed in 1950 as United Bank of India Ltd. with amalgamation of four banks viz. Comilla Banking Corporation Ltd. (1914), Bengal Central Bank Ltd. (1918), Comilla Union Bank Ltd. (1922) and Hooghly Bank Ltd. (1932). At the time of nationalisation it had 174 branches, Rs. 147 crores of deposits and Rs. 112 crores of advances in July, 1969. Today it has 1310 branches, over Rs. 25,348 crores of deposits and Rs. 11839 crores of gross advances as on 31.03.2005. Now it has a three-tier organisational set-up consisting of the Head Office, 28 Regional Offices and 1312 branches.
Vijaya Bank: Vijaya Bank started its operation in 1931 to promote banking habit, thrift and entrepreneurship among the farming community of Dakshina Kannada district in Karnataka. It became a scheduled bank in 1958. It merged with nine smaller banks during 1963-68 and grew as All India Bank and was nationalised on 15th April 1980. It has 910 computerized branches all over India, 19 of them having ATM facilities.
List of State Bank of India and its subsidiary, a Public Sector Banks
State Bank of India: State Bank of India (SBI) was nationalised in July 1955 under the SBI Act of 1955. Seven banks of SBI formed subsidiary and was nationalised on 19th July, 1960. The State Bank of India is India’s largest commercial bank and is ranked one of the top five banks worldwide. It serves 90 million customers through a network of 9,000 branches and it offers — either directly or through subsidiaries — a wide range of banking services.
State Bank of Bikaner & Jaipur: State Bank of Bikaner and Jaipur (SBBJ) is an amalgamation of State Bank of Jaipur with State Bank of Bikaner. It is a subsidiary of State Bank of India. The Bank took over the business of ‘the Govind Bank Pvt. Ltd.’ on 25th April, 1966. In Rajasthan, SBBJ commands nearly 30% business of entire scheduled commercial bank’s businesses. As on 30.06.2004, the total business of the Bank has crossed 25700 crore Rupees.
State Bank of Hyderabad: State Bank of Hyderabad was established on 08.08.1941 as Hyderabad State Bank and acted as the Central Bank of Hyderabad. In 1953, it took over the assets and liabilities of the Hyderabad Mercantile Bank Ltd. The same year, it started conducting Government and Treasury business as agent of RBI. In 1956, the Bank was taken over by Reserve Bank of India as its first subsidiary and its name was changed from Hyderabad State Bank to State Bank of Hyderabad. It became a subsidiary of the State Bank of India on the 01.10.1959 and is now the largest Associate Bank of State Bank of India.
State Bank of Indore: State Bank of Indore was originally known as Bank of Indore Ltd. The Bank became a subsidiary of State Bank of India on 01.01.1960 and was renamed. It acquired business of The Bank of Dewas Ltd. in 1962 and The Dewas Senior Bank Ltd. in 1965. It was graded ‘A’ class category bank in 1971. In 2003-2004 its business turnover crossed Rs. 17000 crore.
State Bank of Mysore: State Bank of Mysore was established in 1913. Earlier it was known as Bank of Mysore Ltd. In March 1960, it became the associate of State Bank of India. SBI holds 92.33% shares of the Bank. Its shares are listed in Bangalore, Chennai and Mumbai stock exchanges. As on 31.03.2005, the Bank has a network of 633 branches and 20 extension counters in India which includes 6 SSI branches, 4 Industrial Finance branches, 6 specialised Personal Banking branches, 10 Agricultural Development Branches, 2 Treasury branches, 1 Asset Recovery branch and 7 Service branches. The paid up capital of the Bank as on 31.03.2005 is Rs. 360 millions and the networth is Rs. 7508 millions. The Bank’s capital adequacy ratio is 12.08%. The total deposits mounts to Rs. 133429 millions and the total advances stood at Rs. 91245 millions, including export credit of Rs. 7530 millions with an earning per share at Rs. 572.94. The forex turnover of the Bank crossed Rs. 101116.40 millions during 2004-05.
State Bank of Saurastra: ( This bank is now merged with SBI). State Bank of Saurashtra was established in the year 1950 as a statutory corporation of Bhavnagar Darbar Bank under the Saurashtra State Bank (Amalgamation) Ordinance. In the same year on 1st of July, the four banks were merged to form its branches. They were Rajkot State Bank, Porbandar State Bank, Palitana Darbar Bank and Vadia State Bank. In 1960, the Bank joined the State Bank family. In 1950, the Bank had deposits of Rs. 7 crores. Now, as on 31.03.2004, the total deposits is Rs. 10674.76 croress. Today it is spread over 13 States and Union Territory of Daman & Diu and has a network of 419 branches. The paid up Capital and Reserves are Rs. 767.41 crores and the Capital Adequacy Ratio of 14.53% as at the end of March 2004.
State Bank of Travancore: State Bank of Travancore was established as Travancore Bank Ltd. in the year 1945 and then it was sponsored by the erstwhile Princely State of Travancore. Later it became the associate of State Bank of India according to the SBI subsidiary Banks Act 1959.