Prior to establishment of RBI, the functions of a central bank were virtually being done by the Imperial Bank of India . RBI started its operations from April 1, 1935. It was established via the RBI act 1934, so it is also known as a statutory body. Similarly, SBI is also a statutory body deriving its legality from SBI Act 1955.
RBI did not start as a Government owned bank but as a privately held bank without major government ownership. It started with a Share Capital of Rs. 5 Crore, divided into shares of Rs. 100 each fully paid up. In the beginning, this entire capital was owned by private shareholders. Out of this Rs. 5 Crore, the amount of Rs. 4,97,8000 was subscribed by the private shareholders while Rs. 2,20,000 was subscribed by central government.
After independence, the government passed Reserve Bank (Transfer to Public Ownership) Act, 1948 and took over RBI from private shareholders after paying appropriate compensation. Thus, nationalization of RBI took place in 1949 and from January 1, 1949, RBI started working as a government owned bank.
What was Hilton Young Commission?
Hilton-Young Commission was the Royal Commission on Indian Currency and Finance set up by British Government of India in 1920s. In 1926, this commission had recommended to the government to create a central bank in the country. On the basis of mainly this commission, the RBI act was passed.
Where were the original headquarters of RBI?
Original headquarters of RBI were in Kolkata, but in 1937, it was shifted to Shahid Bhagat Singh Marg, Mumbai.
In which year was the Banking Regulation Act passed ?
Immediately after the independence, the Government of India came up with the Banking Companies Act 1949. This act was later changed to Banking Regulation (Amendment) Act 1949. Further, the Banking Regulation (Amendment) Act of 1965 gave extensive powers to the Reserve Bank of India as India’s central banking authority.
The banking sector reforms started immediately after the independence. These reforms were basically aimed at improving the confidence level of the public because in those days, most banks were not trusted by the majority of the people. Instead, the deposits with the Postal department were considered rather safe. Banking sector and Financial sector reforms are not static events but continuous processes happening even today and will keep continuing. Nationalization of Banks, consolidation, diversification and liberalization of the banking industry in the 1980s and 1990s were part of this ongoing process. A few recent events as part of banking sector reforms include:
The first major step was Nationalization of the Imperial Bank of India in 1955 via State Bank of India Act. State Bank of India was made to act as the principal agent of RBI and handle banking transactions of the Union and State Governments.
After that, in a major process of nationalization, seven subsidiaries of the State Bank of India were nationalized via the State Bank of India (Subsidiary Banks) Act, 1959. In 1969, fourteen major private commercial banks were nationalized. These 14 banks Nationalized in 1969 are shown in the below table.
List of 14 Banks Nationalized in 1969 | |
---|---|
1. | Central Bank of India |
2. | Bank of Maharashtra |
3. | Dena Bank |
4. | Punjab National Bank |
5. | Syndicate Bank |
6. | Canara Bank |
7. | Indian Bank |
8. | Indian Overseas Bank |
9. | Bank of Baroda |
10. | Union Bank |
11. | Allahabad Bank |
12. | United Bank of India |
13. | UCO Bank |
14. | Bank of India |
The above was followed by a second phase of nationalization in 1980, when Government of India acquired the ownership of 6 more banks, thus bringing the total number of Nationalized Banks to 20. The private banks at that time were allowed to function side by side with nationalized banks and the foreign banks were allowed to work under strict regulation.
What was the impact of Nationalization of Banks?
Nationalization of the Banks brought the public confidence in the banking system of India. After the two major phases of nationalization in India, the 80% of the banking sector came under the public sector / government ownership. After the nationalization of banks, the branches of the public sector banks in India rose to approximately 800 per cent in deposits, and advances took a huge jump by 11,000 per cent. Government ownership gave the public implicit faith and immense confidence in the sustainability of public sector banks.
What are financial sector reforms ? Why they are needed?
The financial sector reforms are one of the most important policy agenda of the authorities around the world. There are several reasons for the same.
In 1991, India embarked into an era of Economic Reforms which led to liberalization, privatization and globalization of the Indian Economy. The financial sector reforms were an integral part to these reforms.
The financial sector reforms got momentum with the recommendations of various committees such as Chakravarty Committee (1985), Vaghul Committee (1987) and most notably by Narasimham Committee (1991), which is also known as first Narasimham Committee.
What is the importance of year 1991 in banking of India?
Prior to 1991, India was more or less an isolated economy, loosely integrated with the economy of rest of the world. The public sector was born out of a planned economy model, which was underpinned by a Nehruvian-Fabian socialist philosophy.
In 1991, India embarked on the path of liberalization, privatization and globalization. This injected new energy into the slow growing Indian Economy. With reference to Banking sector, it was in this year that the first Narasimham Committee gave a blueprint of banking sector reforms. On the basis of these recommendations, the government launched a comprehensive financial sector liberalization programme which included interest rates liberalization, reduction of reserved rations, reduced government control in banking operations and establishment of a market regulatory framework. Another outcome of liberalization was the dismantling of prohibitions against foreign direct investment.
Some more outcomes of reforms that impacted the banking sector were:-
Capital index bonds were introduced in India for the first time. The newly adopted policy of liberalization led the RBI to provide licenses to conduct banking operations to some private banks such as ICICI Bank, HDFC Bank etc. The growth of industries and expansion of economic operations also revitalized banking operations, which had to keep up with the demand for various banking operations by the flourishing and even nascent enterprises.
Bankers also responded to the renewed demand from the industrial sector and regular customers. New technology and customer-friendly measures were adopted by bankers to attract and retain customers. The Banking Ombudsman was established, so that consumers could have a forum to address their grievances against banks and the services they provided.
Timeline of Banking in India | |
---|---|
1770 | First bank was established at Cacutta under European Management. |
1786 | General Bank of India was set up. |
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 |
1861 | Paper Currency Act was enacted by British Government of India |
1863 | Oldest Joint Stock bank of India named Bank of Upper India was established. |
1865 | Allahabad Bank was established. |
1881 | Oudh Commercial Bank, the first Bank of India with Limited Liability to be managed by Indian Board was established at Faizabad |
1895 | Punjab National Bank was established. It was first bank purely managed by Indians. |
1911 | Central Bank of India, first Indian commercial bank which was wholly owned and managed by Indians, was established. It was called First Truly Swadeshi bank |
1921 | Three presidency banks viz. Bank of Calcutta, Bank of Bombay and Bank of Madras amalgamated to form Imperial Bank of India |
1935 | Creation of Reserve bank of India |
1949 (January ) | Nationalization of Reserve Bank of India |
1949 (March) | Enactment of Banking Regulation Act |
1955 | Nationalization of Imperial Bank of India, which now became State Bank of India |
1959 | Nationalization of SBI Subsidiaries |
1969 | Nationalization of 14 major Banks |
1971 | Creation of Credit Guarantee Corporation |
1975 | Creation of Regional Rural Banks |
1980 | Nationalization of 7 more banks with deposits over Rs. 200 Crore |
Year / Date | Bank |
---|---|
1786 | General Bank of India (First bank established in India) |
1790 | Bank Of Hindustan which lasted until. 1832. |
1839 | Union Bank |
02 June 1806 | Bank of Calcutta |
15th April 1840 | Bank of Bombay |
01st July 1843 | Bank of Madras |
1863 | Bank of Upper India |
1865 | Allahabad Bank |
1881 | Oudh Commercial Bank |
19th May 1894 | Punjab National Bank |
1895 | Punjab National Bank In Lahore |
1904 | City Union Bank |
1906 | Bank of India |
12-Mar-06 | Corporation Bank |
15th August 1907 | Indian Bank |
1908 | Bank of Baroda |
01st July 1906 | Canara Hindu Permanent Fund (Renamed as Canara Bank in 1910) |
21st December 1911 | Central Bank of India |
1916 | Karur Vysya Bank |
11-Nov-19 | Union Bank of India |
26th November 1920 | Catholic Syrian Bank |
1921 | Imperial Bank of India by merger of three presidency banks. |
11th May 1921 | Tamilnad Mercantile Bank Limited |
1923 | Andhra Bank |
1924 | Karnataka Bank Limited |
1925 | Syndicate Bank |
1926 | Lakshmi Vilas Bank Limited |
1927 | Dhanlaxmi Bank Ltd |
1929 | South Indian Bank Limited |
23rd October, 1931 | Vijaya Bank |
1934 | Reserve Bank of India |
16th Sept 1935 | Bank of Maharashtra |
1937 | Indian Overseas Bank |
1938 | Jammu & Kashmir Bank |
26th May 1938 | Dena Bank |
19th February 1943 | Oriental Bank of Commerce |
1943 | UCO Bank |
1943 | United Bank of India |
1945 | Federal Bank Limited |
1954 | Nainital Bank Limited |
1955 | State Bank of India (Imperial Bank of India renamed as SBI) |
1985 | Kotak Mahindra Bank |
1994 | UTI Bank (Now Axis Bank) |
Aug-94 | HDFC Bank |
1996 | ICICI Bank |
2003 | Yes Bank |
2013 | Bhartiya Mahila Bank |
All the Best!
Avision
Howrah, Liluah & Kolkata
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