Historical evolution of banking system in India

Phase 1: Pre – Independence Phase

There were almost 600 banks present in India before independence. The first bank to be established as the Bank of Hindustan was founded in 1770 in Calcutta. It closed down in 1832. The Oudh Commercial Bank was India’s first commercial bank.

A few other banks that were established in the 19th century, such as Allahabad Bank (Est. 1865) and Punjab National Bank (Est. 1894), have survived the test of time and exist even today.

Phase 2: Post-independence Phase

In 1975, the Government of India recognized that several groups were financially excluded. Between 1982 and 1990, it created banking institutions with specialized functions in line with the evolution of financial services in India.

  • NABARD
  • EXIM Bank ..etc

Phase 3: The LPG Era (1991 till date)

From 1991 onwards, there was a sea change in the Indian economy. The government invited private investors to invest in India. Ten private banks were approved by the RBI. A few prominent names which exist even today from this liberalization are HDFC, Axis Bank, ICICI, DCB, and IndusInd Bank.

In the early to mid-2000s, two other banks, Kotak Mahindra Bank (2001) and Yes Bank (2004), received their licenses. IDFC and Bandhan banks were also given licenses in 2013-14.

Other notable changes are:

  • Foreign banks like Citibank, HSBC, Bank of America set up branches in India.
  • The nationalization of banks came to a standstill.

Banks began to digitalize transactions and various other related banking operation