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History of Indian Banking

June 2, 1806: The Bank of Calcutta established.
January 2, 1809: redesigned as Bank of Bengal
April 15, 1840: Bank of Bombay established.
July 1, 1843: Bank of Madras established.
1861: Paper Currency Act passed
January 27, 1921: all 3 banks amalgamated to form Imperial Bank of India
July 1, 1955: State Bank of India formed

The early history of Indian banking and finance was marked by strong
governmental regulation and control. The roots of the national system were in the State Bank of India Act of 1955, which nationalized the former Imperial Bank of India and its seven associate banks. In the early days, this national system operated along side of a large private banking system. However, in two acts of nationalization in 1969 and 1980, the government nationalized the largest private sector banks in order to bring the bulk of the banking system under direct governmental control. Following the nationalizations in 1969 & 1980, the governmental bank’s share of bank assets jumped from 31% to 92%.
(ICRA pg 5) The objective of this strong national influence was to make the banks
public instruments of development with the government having control over where and how funds were raised and lent.
The result of the national control of the banks was a gradual decline in
productivity and a rise in nonperforming assets. Banks were limited in their operational flexibility by the government’s desire to maintain employment in the banking system and were often drawn into troublesome loans in order to further the government’s social goals. In 1991, the problems in the system reached a critical breaking point and the government asimbam to examine the problems and recommend changes. This commissions report was the basis of the reforms that took place during the 1990’s and early 2000’s.

Over the past 15 years, the Indian financial system has seen tremendous changes.
Interest Rates have been largely deregulated, new banks have been allowed to enter the market and competition has been allowed across a variety of different product lines including loans, insurance, credit card, mutual funds and corporate banking services.

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