History of Banking in India

The History of Banking in India is as old as Vedic Civilization. For example, in Vedic age the loan deeds called rnapatra or rnalekhya were prevalent. Interest rates as well as usury (सूदखोरी ) was prevalent in Vedic India.

The Vedic word Kusidin refers to an usurer. Manusmriti condemns usury but calls it an acceptable means of acquiring wealth. Existence of institution money lending proved by the fact that Manusmriti fixes minimum and maximum rates of interest and considers money lending above a certain rate as grave sin. However, it fixes different ceiling rates for different caste.  For example, the rate of interest for Brahmins was 24% while it was 36%, 48% and 60% for Kshatriyas, Vaishyas and Shudras.

Akin to the Vedic era, the Buddhist, Mauryan and Mughal periods are also known for various types of such instruments. The Arthashastra of Kautilya mentions presence of bankers during Maurya era. There were instruments in Maurya Era known as “Adesha” which are equivalent to Bill of exchange of current times. There are plenty of references available in the ancient Indian literature regarding an indigenous banking system that financed the trade and commerce in the country. The businessmen called Shroffs, Seths, Sahukars, Mahajans, Chettis etc. had been carrying on the business of banking since ancient times.

These indigenous bankers included very small money lenders to shroffs with huge businesses, who carried on the large and specialized business even greater than the business of banks.

Origin of Modern Banking Industry in India

First Bank of India

The first bank of India is Bank of Hindustan established in 1770. This bank was established at Calcutta under European management. It was liquidated in 1830-32.

Presidency Banks

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. The dates of their establishment were as follows:

• 2 June 1806:Bank of Calcutta was established in 1806; it was renamed in 1809 as Bank of Bengal
• 15 April 1840: Bank of Bombay established
• 1 July 1843: Bank of Madras established

These worked as quasi central banks in India for many years. Since Calcutta was the most active trading port in India, mainly due to the trade of the British Empire; it became a banking center.

Imperial Bank of India

In 1921, the presidency banks viz. Bank of Bengal, Bank of Bombay and Bank of Madras were amalgamated to form Imperial Bank of India. It was a private entity till that time. In 1955, this Imperial Bank of India was nationalized and renamed as State Bank of India. Thus, State bank of India is oldest Bank of India among the banks that exist today.

Oldest Joint Stock Bank of India

A bank that has multiple shareholders is called joint-stock bank. Oldest Joint Stock bank of India was Bank of Upper India that was established in 1863. But this bank failed in 1913. India’s Oldest Joint Stock Bank which is still working is Allahabad Bank. It is also known as India’s oldest public sector bank. It was established in 1865.

First banks owned / managed by Indians

The first Bank 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. The first bank purely managed by Indians was Punjab National Bank, established in Lahore in 1895. The Punjab national Bank has not only survived till date but also is one of the largest banks in India. However, the first Indian commercial bank which was wholly owned and managed by Indians was Central Bank of India which was established in 1911. So, Central Bank of India is called India’s First Truly Swadeshi bank. Its founder was Sir Sorabji Pochkhanawala and its first chairman was Sir Pherozeshah  Mehta.

First bank to open a branch at foreign soil

Bank of India was the first Indian bank to open a branch outside India in London in 1946 and the first to open a branch in continental Europe at Paris in 1974. Bank of India  was founded in September 1906 as a private entity and was nationalized in July 1969. Since the logo of this Bank is a star, its head office in Mumbai is located in Star House, Bandra East, Mumbai.

Important Dates in Banking History of India

Dates of Establishment of various Banks