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Stages in the Evolution of Banking in India, Banking Evolution

During the British administration in India, the British brought modern banking as it had evolved in England. Naturally, today's Indian banking resembles that of the United Kingdom. However, this does not imply that India was unaware of banking. Lending for productive purposes is the essence of banking. In truth, India was a key worldwide commerce partner and a large manufacturer of steel, cloth, spices, and other goods.

In the Manusmrity, there are references to interest rates and loan security. In the 'Artha Shastra,' Kautilya cites interest rate regulation, deposit regulation, and even bill discounting. They were known as the 'Hundies.' In the Mughal and Maratha courts, big merchants, traders, and moneylenders known as "Sresthis" or "Nagarseths" held key positions.

They had a weldeveloped courier system, numerous branches across India, and they also provided loans to rulers. Stages in the Evolution of Banking in India Some important stages in the evolution of modern banking in India are as follows:

  • Agency Houses: Because of the language barrier, English traders in India had difficulty raising working capital. As a result, they created Agency Houses that merged trade and banking. In 1770, a single agency firm founded India's first bank, the Bank of Hindustan. Many banks were formed afterwards. However, they vanished almost as quickly as they appeared. Then anyone could open a bank. Everyone was welcome on the pitch.
  • Presidency Banks: The ruler of India, the East India Company, took the lead in establishing Presidency Banks by contributing 20% of their share capital to meet its own funding needs. As a result, in 1806, 1840, and 1943, the Bank of Bengal, Bank of Bombay, and Bank of Madras were created, respectively.
  • Joint Stock Banks: Banks were allowed to be established on the limited liability principle in 1884. This eventually encouraged the establishment of banks. Many banks were established by the turn of the century on the initiative of Indians. Punjab National Bank, Allahabad Bank, and Bank of Baroda were among the banks that were founded at the time. Many foreigners have also entered the Indian banking industry.
  • Imperial Bank of India: To meet the competition of foreign banks, the three Presidency Banks were amalgamated and a powerful Imperial Bank of India was established in 1921 with its network of branches all over the country. This bank was later nationalized in 1955 and it is today's State Bank of India. Because the government is a customer, this is a prestigious bank.
  • Establishment of the Reserve Bank of India: Despite the fact that the banking industry was booming, there were frequent bank collapses due to a lack of oversight and prompt aid. People developed a negative perception of banks as a result of this. They avoided banks at all costs. The Hilton Young Commission emphasized the need for a separate central bank. As a result, the RBI was founded in 1935 to carry out all of the tasks of a central bank. It was based on the Bank of England's design. However, it lacked significant regulatory authority. Due to the Great Depression and the subsequent Second World War, this was a critical time. The Reserve Bank of India (RBI) was powerless to intervene in the banking system.

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