Introduction
Banking has always been a reflection of society’s needs and technological growth. From the days when banking meant waiting in long queues and filling out deposit slips, to the present age where money can move across borders within seconds, the transformation has been remarkable. In the 21st century, banks are not merely financial institutions; they are also technology-driven service providers competing with fintech companies and adapting to the demands of digital consumers. The recent trends—such as the rise of e-banking, ATMs, internet banking, smart cards, credit cards, and the use of expert systems—show how finance has blended with technology to redefine the global as well as Indian banking landscape.
Historical Evolution of Banking
Global Perspective
The origins of banking can be traced back to Mesopotamia around 2000 BCE, where temples and palaces provided loans to farmers and traders in exchange for grain or precious metals.1 Similar systems of credit and lending existed in ancient Greece and Rome, where moneylenders accepted deposits and financed commercial ventures.2
The first recognizable prototype of a modern bank appeared in Renaissance Italy. The Medici Bank, established in Florence during the 14th century, is often considered a pioneer in banking because it introduced the double-entry bookkeeping system and branch networks.3 Later, in 1609, the Bank of Amsterdam was created to stabilize currency and provide reliable financial services in Europe, serving as a model for central banks.4
By the 18th and 19th centuries, banking had become institutionalized with the rise of commercial banks in Britain, France, and Germany, alongside the establishment of central banks, such as the Bank of England (1694). These institutions played a crucial role in financing industrial revolutions, global trade, and colonial expansion.5
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The 20th century witnessed further transformation with the rise of retail banking, the establishment of regulatory frameworks after the Great Depression of 1929, and the emergence of international organizations like the International Monetary Fund (IMF) and the World Bank, which reshaped global financial flows.6 Today, global banking is characterized by transnational corporations, high-frequency trading, and digitalization on an unprecedented scale.
Historical Evolution of Banking in India
India has a uniquely rich banking history, dating back to indigenous systems of credit and trade. Ancient texts such as the Manusmriti and Arthashastra mention lending practices, while merchant communities relied on instruments like hundis (informal bills of exchange) to facilitate long-distance trade.7
The arrival of Europeans introduced modern banking structures. The first bank in India was the Bank of Hindustan (1770), followed by the General Bank of India (1786) and the Bank of Bengal (1806).8 These banks primarily served colonial interests but laid the foundation for institutionalized banking in India.
Following independence in 1947, the Indian government recognized banking as a vital tool for development. A landmark moment was the nationalization of 14 major banks in 1969, followed by another round in 1980, which expanded banking access to rural areas and aligned credit with national priorities like agriculture and small-scale industries.9
The liberalization reforms of 1991 marked the entry of private and foreign banks into the Indian financial system. Banks like HDFC, ICICI, and Axis revolutionized retail banking through technology-driven services, competing with public sector banks to modernize infrastructure.10
Today, Indian banking stands at the intersection of tradition and innovation. On one hand, public sector banks continue to dominate in rural outreach, while private and foreign players drive digital transformation. The introduction of Unified Payments Interface (UPI) and government schemes like Jan Dhan Yojana have further pushed India into becoming a global leader in financial inclusion and digital payments.
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Role of Central Banks: Global and Indian Perspectives
The modern banking system cannot be understood without appreciating the role of central banks, which serve as the apex institutions responsible for regulating money supply, credit flow, and financial stability. Globally, the central bank has evolved as both a regulator and a crisis manager, while in India, the Reserve Bank of India (RBI) has performed a critical role in steering economic policy, safeguarding currency, and overseeing banks.
Global Role of Central Banks
The concept of a central bank originated with the Bank of England (1694), which initially functioned as a lender to the government but gradually assumed responsibility for maintaining monetary stability.11 In the modern era, central banks such as the Federal Reserve System in the United States (1913), the European Central Bank (1998), and the Bank of Japan have become powerful institutions shaping not only national but also global financial markets.12
Central banks typically perform three major functions:
- Monetary Policy Implementation – Controlling inflation, interest rates, and liquidity to stabilize economic growth.
- Lender of Last Resort – Providing emergency funding to commercial banks during financial crises, as seen during the 2008 Global Financial Crisis, when the Federal Reserve injected trillions of dollars into markets.13
- Financial Supervision – Regulating and monitoring banks to prevent systemic risks, money laundering, and insolvency.
Thus, globally, the central bank is both a guardian of stability and a driver of innovation, particularly with the rise of digital currencies and experiments with Central Bank Digital Currency (CBDC) in countries like China (Digital Yuan) and the Eurozone (Digital Euro).14
Role of the Reserve Bank of India
Established in 1935 under the RBI Act, 1934, the Reserve Bank of India is the central monetary authority of India. Initially privately owned, it was nationalized in 1949, making it fully
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government-owned.15 The RBI has since acted as the keystone of India’s banking and financial structure.
Its responsibilities include:
- 1. 2. Issuing Currency: The sole authority to issue notes, except one-rupee notes and coins. Monetary Policy: Controlling inflation and ensuring economic stability through tools such as the Repo Rate, Reverse Repo Rate, and Cash Reserve Ratio (CRR).
- Regulation of Banks: Supervising commercial banks, cooperative banks, and non- banking financial companies (NBFCs).
- Promoting Financial Inclusion: Spearheading efforts like Priority Sector Lending (PSL) and supporting initiatives like Jan Dhan Yojana.
- Technological Push: Recently, the RBI has been piloting the Digital Rupee (CBDC) as part of India’s strategy to digitize money supply.16
The RBI has also played a crisis-management role during economic shocks, whether the 1991 Balance of Payments crisis, the 2008 Global Financial Crisis, or the COVID-19 pandemic, during which it introduced emergency liquidity facilities and loan moratoriums.17
In this sense, the RBI mirrors the global central banks’ role but adapts it to India’s unique challenges: a large rural population, financial illiteracy, and rapid digitalization.
Public and Private Sector Banks in India
The Indian banking landscape is often analyzed through the lens of ownership and management, with Public Sector Banks (PSBs) and Private Sector Banks forming the backbone of the system. Each category has distinct strengths and weaknesses.
Public Sector Banks (PSBs)
Public sector banks are those in which the government holds a majority stake. They include giants like the State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda. After the nationalization waves of 1969 and 1980, PSBs came to dominate Indian banking, accounting for more than 70% of deposits and advances at their peak.18
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The strength of PSBs lies in their wide outreach. They have a strong rural presence, which enables them to implement government schemes such as farm loan waivers, crop insurance, and financial inclusion programs. However, they also face challenges such as high non- performing assets (NPAs), bureaucratic inefficiency, and slower adoption of new technology compared to private banks.19
Private Sector Banks
The post-liberalization era (1991 onwards) saw the emergence of private banks such as HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank. These banks adopted technology at an early stage, offering modern services like net banking, mobile apps, and instant payments. They are widely considered more customer-centric, efficient, and competitive.
Private banks have also pioneered India’s digital payments revolution, investing heavily in UPI platforms, AI-driven chatbots, and fintech collaborations. Their challenges, however, include over-concentration in urban markets and relatively limited reach in rural areas compared to PSBs.
Balancing the Two
India’s banking ecosystem today reflects a balance between PSBs and private banks. While PSBs ensure social banking and financial inclusion, private banks lead in innovation and service quality. Together, they create a hybrid system where the RBI acts as the regulator to maintain systemic stability and prevent excessive risk-taking.
This duality also allows India to experiment with fintech and digital banking while safeguarding vulnerable populations through state-backed financial institutions.
Financial Inclusion and Jan Dhan Yojana
Understanding Financial Inclusion
Financial inclusion is defined as the process of ensuring access to financial services—such as savings, credit, insurance, and remittance facilities—to weaker and low-income groups at an affordable cost. The World Bank considers financial inclusion to be essential for poverty alleviation, reducing inequality, and promoting sustainable growth.
In India, financial inclusion has been a policy priority since Independence. However, the reality was that despite having one of the largest banking networks in the world, large segments of the population— particularly in rural and semi-urban areas—remained outside the formal banking system.
Key challenges included:
- Lack of banking infrastructure in rural regions.
- Financial illiteracy and mistrust of banks.
- Low-income levels prevent savings.
- Dependence on informal moneylenders for credit.
The situation began to improve after the 1969 and 1980 bank nationalizations, which expanded the reach of Public Sector Banks (PSBs) to rural India. However, it was only in the 21st century that financial inclusion became a mission-driven national agenda.
Pradhan Mantri Jan Dhan Yojana (PMJDY)
Launched in August 2014, the Pradhan Mantri Jan Dhan Yojana (PMJDY) became a landmark scheme for financial inclusion in India. It sought to ensure universal access to banking facilities by providing every household with at least one bank account.
Salient features of PMJDY:
- Zero-Balance Accounts – Any citizen could open an account without a minimum balance requirement.
- RuPay Debit Cards – Each account holder was issued a debit card to encourage cashless transactions.
- Overdraft Facility – Accounts with satisfactory operations became eligible for an overdraft of up to ₹10,000.
- Insurance Benefits – Free accident insurance cover of ₹2 lakh and life insurance cover of ₹30,000 for eligible beneficiaries.
- Direct Benefit Transfer (DBT) – Government subsidies, pensions, and wages could be directly credited into beneficiaries’ accounts, reducing leakage and corruption.
As of 2023, more than 490 million PMJDY accounts had been opened, with deposits exceeding ₹1.8 trillion, making it the world’s largest financial inclusion initiative.
Recent Trends of the Banking System: Technology and Transformation
Impact of Financial Inclusion
The success of PMJDY and related schemes like Aadhaar-enabled Payment Systems (AePS) and UPI has transformed India into a global leader in digital financial inclusion. Benefits include:
- Reduced Dependence on Informal Sector: Villagers now access credit through banks rather than moneylenders charging exorbitant interest.
- Women Empowerment: Women beneficiaries of schemes such as PM Ujjwala Yojana and MNREGA wages receive funds directly in their accounts.
- Digital Ecosystem Development: Coupled with smartphones and internet penetration, PMJDY created a foundation for India’s digital payments revolution.
Nonetheless, challenges remain. Many accounts are dormant, digital illiteracy persists, and issues of cybersecurity pose risks to inclusion.24
New Technology in Banking
The term “new technology” in banking refers to innovations that enhance efficiency, accessibility, and security. Globally, artificial intelligence (AI), blockchain, cloud computing, and data analytics have become cornerstones of modern banking.25 Banks now use AI-powered chatbots for customer support, blockchain for secure transactions, and machine learning for fraud detection.
In India, the Unified Payments Interface (UPI) has been revolutionary. Introduced by the National Payments Corporation of India (NPCI), UPI allows instant fund transfers through mobile devices, and as of 2024, India records over 10 billion monthly UPI transactions.26
Recent Trends
The Reserve Bank of India (RBI) has also launched pilot projects on Central Bank Digital Currency (CBDC), positioning India as one of the leaders in experimenting with digital rupee technology.27
These developments show that banking is no longer confined to physical branches; it is becoming an invisible but ever-present service, integrated into daily life.
E-Banking
E-banking, or electronic banking, has erased geographical boundaries. Customers can now access their accounts, transfer funds, pay bills, and even apply for loans online. Globally, banks like HSBC and Citibank have shifted much of their services online,28 while in India, almost every major bank—SBI, HDFC, ICICI, Axis—offers mobile and internet banking apps.
During the COVID-19 pandemic, the significance of e-banking grew even more. With lockdowns restricting movement, digital transactions became the lifeline of economies.29 In India, the Digital India mission has been instrumental in promoting e-banking. Even rural areas are seeing gradual adoption, though challenges such as poor internet connectivity and low digital literacy remain.30
Automatic Teller Machines (ATMs)
ATMs were once revolutionary because they brought banking out of the branch and into public spaces. Introduced in India in 1987 by HSBC,31 ATMs allowed 24/7 access to cash. Over time, they expanded to services such as balance inquiries, mini-statements, and cheque deposits.
Globally, ATMs are now becoming “smart ATMs” that offer cardless withdrawals using mobile apps, QR codes, or biometric authentication.32 In India, however, the rise of UPI has reduced the dependence on ATMs for cash withdrawal. According to RBI reports, ATM transactions are growing at a slower pace compared to digital transactions.33
Use of the Internet in Banking
The internet is the backbone of modern banking. From online portals to mobile apps, internet access has made banking seamless. Globally, internet banking has evolved into “omnichannel banking,” where customers can start a transaction on one platform (like a website) and finish it on another (like a mobile app).34
In India, internet banking usage has surged, but with a twist: while urban customers prefer mobile apps, rural users are increasingly adopting banking correspondents and kiosks that operate with internet-enabled devices.35 The RBI’s emphasis on financial inclusion has made internet banking not only a luxury but also a tool for empowerment.36
The flip side, however, is cyber security. Banks have had to invest heavily in firewalls, encryption, and fraud detection to combat phishing, identity theft, and ransomware attacks.37
Smart Cards
Smart cards—embedded with microchips—are safer than magnetic stripe cards. They store encrypted data and reduce the risk of fraud.38 Globally, smart cards are widely used for contactless payments, transport systems (like London’s Oyster card), and secure ID systems.39
In India, the transition to EMV chip-enabled debit and credit cards was made mandatory by the RBI to curb fraud.40 Today, most debit and credit cards issued in India are smart cards, often integrated with contactless payment features. Moreover, the integration of smart cards with loyalty programs, metro services, and retail payments reflects the growing multifunctionality of these tools.
Credit Cards
Credit cards symbolize the shift from “saving first, spending later” to “spending now, paying later.” Globally, credit cards are an integral part of consumer culture, especially in the U.S., where credit scores are tied to card usage.41 In India, the adoption has been slower due to a traditional preference for debit cards.
However, recent years have seen a surge in credit card issuance. Fintech collaborations—such as SBI’s partnership with Paytm—have expanded access to younger consumers.42 With reward points, EMI facilities, and contactless payments, credit cards are no longer just financial tools; they are lifestyle enablers. Still, the challenges of overspending, rising debt levels, and high-interest rates remain significant issues for consumers and regulators alike.43
Expert Systems in Banking
Expert systems use AI to replicate human decision-making in complex areas. In banking, they are used for:
- Fraud detection: spotting unusual transaction patterns.
- Credit risk analysis: assessing a borrower’s repayment ability.
- Customer support: AI-driven chatbots and robo-advisors.
Globally, banks like JPMorgan Chase use expert systems for contract review and compliance monitoring,44 while in India, banks use them for loan approvals, fraud alerts, and personalized product recommendations.45
The RBI has also encouraged the use of AI/ML-based systems for monitoring non-performing assets (NPAs).46 As these systems grow smarter, they could reduce human bias, though they also raise ethical concerns about privacy and algorithmic transparency.
Mobile Banking and UPI Revolution
The mobile phone boom in India provided the perfect opportunity for banks and FinTech to bring financial services into every household. The launch of the Unified Payments Interface (UPI) in 2016 was a game-changer.
UPI allowed instant, real-time transfers between bank accounts using only a smartphone. It was interoperable, secure, and free for customers. By 2023, India was processing over 9 billion UPI transactions per month, accounting for nearly 40% of the world’s digital transactions.47
Popular apps like PhonePe, Google Pay, Paytm, and BHIM became household names, making digital payments accessible even to street vendors. UPI’s global recognition has also led to its adoption in countries like Singapore, UAE, and Nepal.
Challenges and Criticisms
Despite these advancements, challenges persist:
- Cybersecurity threats: Digital banking opens doors to phishing, hacking, and data leaks.48 According to the RBI, there were over 13,000 cases of digital banking fraud reported in 2022–23.49
- Digital divide: Rural and older populations may be excluded from benefits.50
- Regulatory hurdles: Balancing innovation with consumer protection is tricky.51
- Dependence on technology: System outages can paralyze banking operations.52
Conclusion: The Road Ahead
The banking system is no longer about brick-and-mortar branches; it is about clicks, taps, and algorithms. Globally, banks are racing to adopt blockchain, AI, and digital currencies, while in India, the twin forces of UPI and financial inclusion are reshaping how people view money itself. The future of banking will not merely be about transactions but about creating financial ecosystems that are inclusive, secure, and intelligent.
Banking has thus transformed from being a facilitator of money to a driver of digital society. The trends we see today are only the beginning of a journey where finance, technology, and human behaviour converge.
End Notes:
- Rondo Cameron, A Concise Economic History of the World 56 (Oxford Univ. Press, 2003).
- Raymond de Roover, The Rise and Decline of the Medici Bank 23 (Harvard Univ. Press, 1963).
- Id. at 45.
- Herman Van der Wee, “Monetary, Credit and Banking Systems,” in The Cambridge Economic History of Europe 290 (Cambridge Univ. Press, 1977).
- Charles P. Kindleberger, A Financial History of Western Europe 112 (Oxford Univ. Press, 1993).
- Liaquat Ahamed, Lords of Finance: The Bankers Who Broke the World 78 (Penguin Books, 2009).
- Bimal Jalan, India’s Economic Policy: Preparing for the Twenty-first Century 143 (Penguin Books, 1996).
- Amiya Kumar Bagchi, The Evolution of the State Bank of India 66 (Oxford Univ. Press, 1987).
- Reserve Bank of India, Report on Currency and Finance 2006–08 (RBI, 2008).
- Montek Singh Ahluwalia, “Economic Reforms in India Since 1991: Has Gradualism Worked?” Journal of Economic Perspectives Vol. 16, No. 3, 67 (2002).
- Charles Goodhart, The Evolution of Central Banks 12 (MIT Press, 1988).
- Frederic S. Mishkin, The Economics of Money, Banking and Financial Markets 245 (Pearson, 2018).
- Ben S. Bernanke, The Courage to Act: A Memoir of a Crisis and Its Aftermath 178 (W.W. Norton & Co., 2015).
- Raphael Auer et al., “Central Bank Digital Currencies: Motives, Economic Implications and the Research Frontier,” Annual Review of Economics Vol. 14, 2022, at 697.
- Reserve Bank of India Act, No. 2 of 1934, § 3 (India).
- Reserve Bank of India, Concept Note on Central Bank Digital Currency (Oct. 2022).
- Urjit Patel, Overdraft: Saving the Indian Saver 201 (HarperCollins, 2020).
- R. Ramakumar, “Nationalisation of Banks in India: Intended Benefits and Unintended Consequences,” Economic & Political Weekly, Vol. 44, No. 13, at 65 (2009).
- Ashok Gulati & Shweta Saini, “Rising NPAs in Indian Banks: Causes and Remedies,” Indian Journal of Economics & Development Vol. 14, No. 2, at 1 (2018).
- M.S. Sriram, “Customer-Centricity in Indian Private Banks,” IIMB Management Review Vol. 27, No. 4, at 241 (2015).
- World Bank, Global Findex Database 2021: Financial Inclusion, Digital Payments, and Resilience in the Age of COVID-19 9 (World Bank Group, 2022).
- Ministry of Finance, Government of India, Pradhan Mantri Jan Dhan Yojana: Mission Document (2014).
- Reserve Bank of India, Annual Report 2022-23, at 56.
- M.S. Sriram & Nachiket Mor, “Financial Inclusion: Policies and Practices,” Economic & Political Weekly Vol. 51, No. 43, at 55 (2016).
- World Economic Forum, Future of Banking Report (2022).
- Reserve Bank of India, Monthly Bulletin (July 2024).
- Reserve Bank of India, Concept Note on Central Bank Digital Currency (2022).
- HSBC Annual Report (2023).
- International Monetary Fund, Fintech and Financial Services Report (2021).
- Government of India, Digital India Progress Report (2023).
- Reserve Bank of India, History of Banking in India (2019).
- McKinsey & Co., The Future of ATMs (2020).
- RBI, Payment and Settlement Systems in India Report (2023).
- Deloitte Insights, Omnichannel Banking Trends (2022).
- RBI, Financial Inclusion Progress Report (2022).
- World Bank, Global Findex Database (2021).
- PwC, Cybersecurity in Banking (2023).
- Smart Card Alliance, The Case for Smart Cards (2020).
- Transport for London, Oyster Card Guide (2022).
- RBI, EMV Card Mandate Circular (2020).
- Federal Reserve Bank of New York, Credit Trends Report (2023).
- Paytm & SBI Cards, Press Release (2022).
- RBI, Credit Card Usage Report (2023).
- JPMorgan Chase, AI in Banking Whitepaper (2021).
- NITI Aayog, AI in Indian Banking Sector (2021).
- RBI, Report on Trend and Progress of Banking in India (2023).
- NPCI, UPI Product Statistics (2023).
- Norton Cybersecurity Report (2022).
- Reserve Bank of India, Report on Trend and Progress of Banking in India 2022-23, at 87.
- OECD, Bridging the Digital Divide (2021).
- Financial Stability Board, Regulation of Fintech (2022).
- Accenture, Systemic Risks in Banking Tech (2021).
