Banking in India

Topics: Bank, Central bank, Fractional-reserve banking Pages: 2 (650 words) Published: October 10, 2013
A country cannot have a healthy economy without a sound and effective banking system. From 1786 till today, the journey of Indian Banking System can be segregated into three phases: Early phase of Indian banks, from 1786 to 1969

Nationalization of banks and the banking sector reforms, from 1969 to 1991 New phase of Indian banking system, with the reforms after 1991 The first bank in India, the General Bank of India, was set up in 1786.  The East India Company established a number of banks which were amalgamated to form Imperial Bank of India, today’s State Bank of India.  The Reserve Bank of India (RBI) came in 1935. During this phase, the growth was very slow and banks also experienced periodic failures between 1913 and 1948. Banking Regulation Act, 1949 gave the RBI to control the banking sector. The government took major initiatives in banking sector reforms after Independence. The RBI was nationalized and seven banks owned by the Princely states were nationalized in 1959 which became subsidiaries of the State Bank of India. By 1980, 21 private banks were nationalized.  In 1991, the banking sector was liberalized. The country was flooded with foreign and private banks. Efforts are being put to give a satisfactory service to customers and phone as well as net banking was introduced for reducing time of fund transaction. Till the early 1990s the Indian financial sector was characterized by extensive regulations such as administered interest rates, directed credit programs, weak banking structure, lack of proper accounting and risk management systems, and lack of transparency in operations of major financial market participants. The public sector banks (PSB) were controlling 90% of the credit. After the Narasimhan committee recommendations of 1991, competition among financial intermediaries gradually helped the interest rates to decline. Various liquidity control measures like Liquidity adjustment facility and open market operations were put into action....
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