What is the meaning of Bank?

• A bank is a financial organisation and a financial intermediary that accepts deposit and channel those deposits into lending activities, either directly by giving loans or indirectly through capital market.

What is the meaning of Banking?

• Banking -refers to business activity of accepting and safe guarding money owned by other individuals and entitles and then lending out this money in order to earn a profit.
• However, with the passage of time, the activities covered by banking business have widened and now various other services are also offered by banks.  The banking services these days include issuance of debit and credit cards, providing safe custody of valuable items, lockers, ATM services, online transfer of funds across the country / world etc.

Banking During Ancient and Medieval Period:

• In ancient India, loan deed forms called rnapatra or rnalekhya were in use. These contained details such as the name of the debtor and the creditor, the amount of loan, the rate of interest, the condition of repayment and the time of repayment. The deed was witnessed by a person of respectable means and endorsed by the loan-deed writer. Execution of loan deeds continued during the Buddhist period, when they were called inapanna.
• The loan deed continued into the Mughal period. The deeds were called dastawez and were of two types: dastawez-e-indultalab which was payable on demand and dastawez-e-miadi which was payable after a stipulated time.
• In the Mauryan period, an instrument called adesha was also in use, which was an order on a banker desiring him to pay the money of the note to a third person, which corresponds to the definition of a bill of exchange as we understand it today.
• In the Mughal period, we have the testimony of foreign travellers regarding the use of bills of exchange in the then great commercial centres. From their writings, it may be noted that Indian bankers also issued bills of exchange on foreign countries, mainly for financing sea-borne trade. These bills were widely accepted and were traded at high discounts, as the discounts included the insurance premium covering the risk representing safe arrival of goods.
• Another instrument in use during the Muslim period was the Pay order. Pay orders were issued from the Royal Treasury on one of the District or Provincial treasuries. They were called Barattes and were akin to present day drafts or cheques.
• The most important class of credit Instruments that evolved in India were termed Hundis. Hundis are used as a form of remittance instrument to transfer money from place to place, as a form of credit instrument or IOU to borrow money and as a bill of exchange in trade transactions. The Reserve Bank of India describes the Hundi as "an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order.

Banking During British Period

• The origin of western type commercial Banking is dated back to the 18th century. Bank of Hindustan is the first bank in India which started at 1770, it was the first bank at Calcutta under European Management. This bank is Liquidated in 1829-32.
• In 1786 General Bank of India was set up.
• From 1612 onwards, British East India Company had set up various factories or trading posts in India with the permission of the local Mughal emperors. 
• In this process, they had established three presidency towns viz. Madras in 1640, Bombay in 1687 and Bengal Presidency in 1690. East India Company’s headquarters moved from Surat to Bombay (Mumbai) in 1687. Three Presidency banks were set up under charters from the British East India Company- Bank of Calcutta, Bank of Bombay and the Bank of Madras. These three banks were: i) Bank of Bengal (Bank of Calcutta)-1806; ii) Bank of Bombay-1840; iii) Bank of madras-1843. Savings account system in India was started by Presidency Banks in 1833.
• Cradle of banking in India: The state of Karnataka, particularly the region comprising the coastal districts of Dakshina Kannada and Udupi is called as the cradle of banking because seven of the country's leading banks, Canara Bank, Syndicate Bank, Corporation Bank, Vijaya Bank, Karnataka Bank, Vysya Bank and the State Bank of Mysore(now merged with SBI) originated from this state.
• Joint Stock Companies Act, 1860 was taken for incorporation and regulation of Joint Stock companies.  This act leads to the formation of India’s First joint Stock bank – Allahabad bank formed in 1865 . However, Oldest Joint Stock bank of India was Bank of Upper India that was established in 1863. But this bank was failed in 1913. 
• The first Bank of India with Limited Liability to be managed by Indian Board was Oudh Commercial Bank. It was established in 1881 at Faizabad. This bank failed in 1958.     
• First Purely Indian bank- PNB was founded in the year 1895 at Lahore (presently in Pakistan) as an off-shoot of the Swadeshi Movement. Among the inspired founders were Sardar Dayal Singh Majithia, Lala Lajpat Rai etc.
• Bank of India was established in 1906. Bank of India was the first Indian bank to open a branch outside India in London in 1946. Since the logo of this Bank is a star, its head office in Mumbai is located in Star House, Bandra East, Mumbai.
• Bank of Baroda was formed in 1908
• Central Bank of India-1911 -First Swadeshi Bank (first Indian commercial bank which was wholly owned and managed by Indians). Its founder was Sir Sorabji Pochkhanawala and its first chairman was Sir Pherozeshah  Mehta.
• Union Bank of India was inaugurated by Mahatma Gandhi in 1919.
• In 1921, all three presidencies banks were merged to formed Imperial Bank of India(Central bank function before RBI)
• Hilton Young Commission ( Royal Commission on Indian Currency and Finance), 1926: The Reserve Bank of India was set up on the basis of the recommendations , 1926: of the Hilton Young Commission. The Reserve Bank of India Act, 1934 has given  the statutory status to the functioning of the Bank, which started its  operations on April 1, 1935

Nationalisation of Banks

• The nationalisation of commercial banks took place with an aim to achieve Social Welfare, Controlling Private Monopolies, Expansion of Banking, Reducing Regional Imbalance, Priority Sector Lending and Developing Banking Habits. In order to have more control over banks, in 19th July, 1969 Mrs Indira Gandhi the then Prime Minister nationalised 14 large commercial banks whose reserves were more than Rs 50 crore. The main aim of nationalising was to reach client in rural area and provide them which more quality services.

Following is the list of bank, which got nationalised at this time

• Allahabad Bank
• Bank of Baroda
• Bank of India
• Bank of Maharashtra
• Central Bank of India
• Canara Bank
• Dena Bank
• Indian Bank
• Indian Overseas Bank
• Punjab National Bank
• Syndicate Bank
• UCO Bank
• Union Bank
• United Bank of India

On 15 April, 1980 the banks with more than Rs 200 crore of reserves got nationalised. Those six banks, which got nationalised are the following:

• Andhra Bank
• Corporation Bank
• New Bank of India
• Oriental Bank of Commerce
• Punjab and Sindh Bank
• Vijaya Bank

Merging of New Bank of India                                                       

• New Bank of India which was formed in 1980 was merged with PNB in 1993 making count to 19 (14+6-1=19)
• This step brought 80% of the banking segment in India under Government ownership. The result was outstanding. The public deposits in these banks increased by 800% , as the government ownership gave the public faith and trust.

History of State Bank Of India

• The largest bank, and the oldest still in existence, is the State Bank of India. It originated as the Bank of Calcutta in June 1806. In 1809, it was renamed as the Bank of Bengal. This was one of the three banks funded by a presidency government, the other two were the Bank of Bombay and the Bank of Madras. The three banks were merged in 1921 to form the Imperial Bank of India, which upon India’s independence, became the State Bank of India in 1955.
• In 1959, the government passed the State Bank of India (Subsidiary Banks) Act. This made SBI subsidiaries of eight that had belonged to princely states prior to their nationalization and operational takeover between September 1959 and October 1960, which made eight state banks associates of SBI. The government integrated these banks into the State Bank of India system to expand its rural outreach.
• on 13 August 2008 when State Bank of Saurashtra merged with SBI, reducing the number of associate state banks from seven to six. On 19 June 2009, the SBI board approved the absorption of State Bank of Indore.
• In August 2017, the Lok Sabha passed the State Banks (Repeal and Amendment) Bill of 2017 to amend the State Bank of India (SBI) Act of 1955 to remove references related to subsidiary banks.

After this, SBI has acquired some local banks with its control. These are called as subsidiaries of SBI. They are

• State Bank of Bikaner and Jaipur (SBBJ)
• State Bank of Hyderabad (SBH)
• State Bank of Mysore (SBM)
• State Bank of Patiala (SBP)
• State Bank of Travancore (SBT)
• State Bank of Saurashtra (Merged with SBI in 2008)
• State Bank of Indore( Merged with SBI in 2009)

Liberalization After 1990

• This period saw a remarkable growth in the process of development of banks with the liberalization of economic policies. 
• Even after nationalization and the subsequent regulations that followed, a large portion of masses is untouched by the banking services.
• Considering this, in 1991, the Narasimham committee gave its recommendation i.e. to allow the entry of private sector players into the banking system.
• Following this, RBI gave license to 10 private entities, out of which few survived the market demands, which are- ICICI, HDFC, Axis Bank, IndusInd Bank, DCB.
• In 1998, the Narsimham committee again recommended entry of more private players. As a result, RBI gave license to the following newbies:

                     (a) Kotak Mahindra Bank (2001)

                     (b)Yes Bank (2004)

• In 2013-14, 3rd round of bank licensing took place. And in 2015, IDFC bank and Bandhan Bank emerged.
• In order to further financial inclusion, RBI also proposed to set up 2 new kinds of banks i.e. Payment Banks and Small Banks.
• ICICI Bank was the first Indian bank to provide internet banking facility.
• Central Bank of India was the first public bank to introduce Credit card.
• ICICI is the first bank to provide mobile ATM.