Banking Awareness : History of Banking

The history of banking dates back to the thirteenth century when the first bill of exchange was used as money in medieval trade. There was no such word as ‘banking’ before 1640, although the practice of safe-keeping and savings flourished in the temple of Babylon as early as 2000 B.C. Chanakya in his Arthashastra written in about 300 B.C. mentioned about the existence of powerful guilds of merchant bankers who received deposits, advanced loans and issued hundis (letters of transfer). The Jain scriptures mention the names of two bankers who built the famous Dilwara Temples of Mount Abu during 1197 and 1247 A.D.

The first bank called the ‘Bank of Venice’ was established in Venice, Itlay in 1157 to finance the monarch in his wars. The bankers of Lombardy were famous in England. But modern banking began with the English goldsmith only after 1640. The first bank in India was the ‘Bank of Hindustan’ started in 1770 by Alexander & Co. an English agency house in Calcutta which failed in 1782 with the closure of the agency house. But the first bank in the modern sense was established in the Bengal Presidency as the Bank of Bengal in 1806.

History apart, it was the ‘merchant banker’ who first evolved the system of banking by trading in commodities than money. Their trading activities required the remittances of money from one place to another. For this, they issued ‘hundis’ to remit funds. In India, such merchant bankers were known as ‘Seths’.

The next stage in the growth of banking was the goldsmith. The business of goldsmith was such that he had to take special precautions against theft of gold and jewellery. If he seemed to be an honest person, merchants in the neighborhood started leaving their bullion, money and ornaments in his care. As this practice spread, the goldsmith started charging something for taking care of the money and bullion. As evidence for receiving valuables, he issued a receipt. Since gold and silver coins had no marks of the owner, the goldsmith started lending them. As the goldsmith was prepared to give the holder of the receipt an equal amount of money on demand, the goldsmith receipts became like cheques as a medium of exchange and a means of payment.

The next stage in the growth of banking is the moneylender. The goldsmith found that on an average the withdrawals of coins were much less than the deposits with him. So he started advancing the coins on loan by charging interest. As a safeguard, he kept some money in the reserve. Thus the goldsmith-money-lender became a banker who started performing the two functions of modern banking that of accepting deposits and advancing loans.

The Indian Banking Starts from Bank of Hindustan Established in 1770 and it was first bank at Calcutta under European management. It was liquidated in 1830-32. Here we are sharing Some most important points related to “History of Banking in India”. Evolution of banking in India started From Bank of Hindustan in 1770, and this evolution can be divided into three different periods as follows:

Phase I: Early phase of primitive Indian banks to Nationalization of Banks in 1969

Phase II: From Nationalization of India banks in 1969 up to advent of liberalization and banking reforms in 1991

Phase III: From Indian Financial and Banking Sector Reforms 1991 onward In 1786 General Bank of India was set up.

♦ Bank of Hindustan            Establishment- 1770                     Liquidation- 1829-32

(First Bank of India) by- Alexander & Co

After 16 After years

♦ General Bank of India            Establishment- 1786 but failed in 1791

♦ Union Bank of India (1869)

(First Private Joint Stock Association)

♦ Presidency Banks :- Three banks called Presidency Banks

I. Bank of Bengal               Establishment-1806 (Bank of Calcutta established in 1806 but after that renamed as Bank of Bengal in 1809)

II. Bank of Bombay             Establishment- 1840

III. Bank of Madras             Establishment- 1843

27 January 1921 Presidency Banks merged to form

Imperial Bank of India (1921)

After Independence on 01 July 1955

Imperial Bank of India became

State Bank of India (1955)

Nationalized– 02 June 1956

SBI Act, 1955

In 1960 SBI was given control to 8 associates Banks under the SBI (Subsidiaries banks) Act, 1959.

♦ Allahabad Bank                 

Establishment-1865 (Oldest Joint Stock Bank in India Still functioning today)

It was not first though. That honour belongs to Bank of Upper India (Establishment-1881) but failed in 1913. Some of its Assets & Liabilities transferred to Alliance Bank of Simla.

♦ HSBC established itself in Bengal 1869.

♦  Oudh Commercial Bank Establishment-1881 in Faizabad but failed in 1958 (The first entirely Indian Joint Stock Bank)

♦ Punjab National Bank (1894) in Lahore (Which was survived to the present and is now largest Public Sector Bank in India) In 1993 Govt. merged New Bank of India with PNB (Now Nationalised Banks 20 to 19)

♦ Between 1906 to 1911 Established no. of Banks have survived present such as- Bank of India, Corporation Bank, Bank of Baroda, Canara Bank & Central Bank of India.