Over the years, banking in India has tremendously evolved. It began with basic lending services and now offers a wide range of financial services and products. Today, it includes various institutions such as commercial banks, non-banking financial companies (NBFCs), small finance banks, and cooperative banks.
 

Be aware that banking in India is regulated by the Banking Regulation Act of 1949. This Act ensures banks follow certain rules and operate within legal boundaries. The evolution of banking in India can be divided into three key phases. Let’s study them.

• The first bank of India was “The Bank of Hindustan”. It ceased operations in 1932.
• Banking in India gradually evolved and now offers several digital services, like mobile banking, internet banking, and ATMs.
• The Indian Government nationalised banks in 1969 and 1980 to expand banking services, especially for rural and priority sectors.
• After 1991, India opened its economy. This attracted significant foreign investment in the banking sector.

Phase 1 of banking in India (1786-1969) started before independence and lasted nearly 200 years. During this time, around 600 banks existed with “The Bank of Hindustan” being the first bank in India. However, it ceased operations in 1932. The East India Company also established three major presidency banks:
 

• The Bank of Calcutta (1806)
• The Bank of Bombay (1840)
• The Bank of Madras (1843)
   

These banks later merged to form the Imperial Bank of India, which was renamed the State Bank of India in 1955. It is worth mentioning that during the period between 1913 and 1948, the Indian banking sector experienced slow growth and stagnation.
 

Although there were around 1,100 banks, many of them faced repeated failures. This created a lack of public confidence in the banking system. To address these challenges, the Indian Government introduced the Banking Regulation Act in 1949. This act improved efficiency of banking operations and offered more stability in the industry.

Phase 2 of banking in India (1969-1991) began with the nationalisation of 14 commercial banks. This was done by the Indian Government in 1969. Through this move, the government tried to reduce people's lack of trust in privately owned banks, as many Indians relied on local moneylenders for loans and other financial needs. Also, the government sought to reduce the concentration of wealth and power among a few families who controlled these banks.
 

Additionally, such a nationalisation was also intended to:

• Mobilise savings
• Expand banking services
• Support India's agricultural sector
• Opening more bank branches in rural areas
• Providing financial services for priority sectors like agriculture and small industries.

In 1980, the government nationalised six more banks. Alongside this, the government established financial institutions, such as the:

• EXIM Bank
• National Housing Board
• NABARD
• SIDBI

These institutions were set up to meet specific needs like supporting agriculture, small industries, and housing projects.
 

Now, if we talk about the benefits of nationalisation, they significantly improved the efficiency of the banking sector and strengthened agriculture and small-scale industries. Also, nationalisation led to:

• Increased public deposits
• Better outreach to rural areas
• More employment opportunities
   

The table below shows the list of banks that were nationalised during this phase:

This phase of banking in India significantly transformed India's banking system. Notably, the Indian Government attracted foreign investment by opening the economy to both foreign and private investors. This led to the introduction of modern banking services such as:

• Mobile banking
• Internet banking, and
• ATMs

The presence of foreign banks in India also increased. This provided more competition and modernised the overall banking experience. Some foreign banks that came to India during this period were:

• HSBC
• Royal Bank of Scotland
• Citibank
• DBS Bank
• Standard Chartered Bank
• Bank of America

Later, in 1991, the Indian Government formed the “Narasimham Committee” to address reforms in public sector banks. This led to the approval of private banks, such as:

• Axis Bank
• IndusInd Bank
• ICICI Bank

These private banks introduced modern practices and made banking in India more customer-friendly. The Government also began treating private and public sector banks equally and started giving both sectors more opportunities for growth.

Some other notable changes include:

• Allowing small finance banks to open branches across India
• An increase in the digitalisation of services
• Introduction of payments banks

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