Banking laws and Institutions

‭Module‬‭1‬

‭Banking‬
‭Banking‬‭Definition‬‭in‬‭India‬‭Section‬‭2‬
‭•‬‭Accepts‬‭lending‬‭or‬‭investment‬‭deposits‬‭from‬‭the‬‭public.‬
‭•‬‭Repayable‬‭on‬‭demand‬‭or‬‭otherwise.‬
‭•‬‭Can‬‭be‬‭withdrawn‬‭via‬‭cheque,‬‭draft,‬‭order,‬‭etc.‬
‭•‬ ‭Banking‬ ‭company‬ ‭includes‬ ‭State‬ ‭Bank‬ ‭and‬ ‭a‬ ‭subsidiary‬ ‭bank‬ ‭except‬ ‭Tamil‬ ‭Nadu‬ ‭Industrial‬
‭Investment‬‭Corporation‬‭Limited.‬

‭History‬‭and‬‭Development‬‭of‬‭Banks‬‭in‬‭India‬
‭ he‬‭banking‬‭sector‬‭in‬‭India‬‭has‬‭seen‬‭a‬‭great‬‭deal‬‭of‬‭evolution.‬‭Banks‬‭have‬‭been‬‭with‬‭us‬‭for‬‭a‬
T
‭long‬‭period‬‭of‬‭time,‬‭even‬‭before‬‭the‬‭country‬‭got‬‭its‬‭independence,‬‭the‬‭banks‬‭existed.‬‭Given‬
‭below‬‭is‬‭a‬‭clear‬‭picture‬‭of‬‭the‬‭banking‬‭history‬‭and‬‭its‬‭evolution:‬‭Banking‬‭history‬‭in‬‭India‬‭can‬‭be‬
‭broadly‬‭divided‬‭into‬‭the‬‭following‬‭stages:‬
‭●‬ ‭Pre‬‭-‬‭Independence‬‭(Before‬‭1947)‬
‭●‬ ‭Post‬‭-‬‭Independence‬‭Phase‬‭-‬‭(Between‬‭1947‬‭to‬‭1991)‬
‭●‬ ‭Liberalization‬‭(1991‬‭-‬‭Until‬‭Now)‬


‭History‬‭of‬‭Banking‬‭Pre‬‭-‬‭Independence‬‭(Before‬‭1947)‬
‭○‬ ‭The‬‭pre-independence‬‭stage‬‭has‬‭seen‬‭some‬‭more‬‭important‬‭events‬‭as‬‭the‬‭phase‬‭marked‬
‭the‬‭presence‬‭of‬‭more‬‭than‬‭600‬‭banks.‬
‭○‬ ‭The‬‭banking‬‭system‬‭in‬‭India‬‭began‬‭with‬‭the‬‭establishment‬‭of‬‭the‬‭Bank‬‭of‬‭Hindustan‬‭in‬
‭1771,‬‭but‬‭it‬‭shut‬‭its‬‭operations‬‭by‬‭1832‬
‭○‬ ‭The‬‭phase‬‭also‬‭witnessed‬‭the‬‭alliance‬‭of‬‭3‬‭major‬‭banks,‬‭that‬‭is,‬‭Bank‬‭of‬‭Bengal,‬‭Bank‬‭of‬
‭Bombay,‬‭and‬‭Bank‬‭of‬‭Madras.‬‭These‬‭banks‬‭were‬‭amalgamated‬‭to‬‭be‬‭called‬‭the‬‭Imperial‬
‭Bank.‬‭The‬‭State‬‭Bank‬‭of‬‭India‬‭(SBI)‬‭took‬‭over‬‭the‬‭Imperial‬‭Bank‬‭in‬‭1955‬
‭○‬ ‭Banks‬‭include‬‭at‬‭the‬‭time‬‭are‬‭-‬‭Allahabad‬‭Banks(1865),‬‭PNB(1894),‬‭Bank‬‭of‬
‭India(1906),‬‭Bank‬‭of‬‭Baroda(1906)etc‬

, ‭History‬‭of‬‭Banking‬‭Post‬‭-‬‭Independence‬‭Phase‬‭-‬‭(Between‬‭1947‬‭to‬
‭1991)‬
‭○‬ ‭Nationalization‬‭of‬‭the‬‭banks‬‭was‬‭a‬‭major‬‭event‬‭to‬‭take‬‭place‬‭during‬‭this‬‭phase.‬
‭○‬ ‭The‬‭Reserve‬‭Bank‬‭of‬‭India‬‭(RBI)‬‭was‬‭nationalized‬‭on‬‭01st‬‭January‬‭1949‬
‭○‬ ‭Apart‬‭from‬‭nationalization‬‭of‬‭banks,‬‭various‬‭Regional‬‭Rural‬‭Banks‬‭(RRBs)‬‭were‬‭formed‬
‭as‬‭well‬‭on‬‭02nd‬‭October‬‭1975‬

‭Nationalization‬‭&‬‭Its‬‭Impacts‬
‭Nationalization‬‭is‬‭the‬‭transferring‬‭of‬‭public‬‭sector‬‭assets‬‭to‬‭be‬‭operated‬‭or‬‭owned‬‭by‬‭the‬‭central‬
‭or‬‭the‬‭state‬‭government.‬‭In‬‭India,‬‭the‬‭banks‬‭that‬‭were‬‭previously‬‭functioning‬‭under‬‭the‬‭privacy‬
‭sector‬‭were‬‭transferred‬‭to‬‭the‬‭public‬‭sector‬‭by‬‭the‬‭act‬‭of‬‭nationalization.‬‭Thus,‬‭the‬‭nationalized‬
‭banks‬‭came‬‭into‬‭existence.‬‭The‬‭nationalization‬‭of‬‭banks‬‭brought‬‭about‬‭the‬‭following‬‭benefits‬‭to‬
‭the‬‭banking‬‭industry‬‭as‬‭well‬‭as‬‭the‬‭economic‬‭growth‬‭of‬‭the‬‭country:‬

‭○‬ ‭Increased‬‭levels‬‭of‬‭efficiency‬‭in‬‭the‬‭banking‬‭system‬
‭○‬ ‭Boosted‬‭confidence‬‭of‬‭the‬‭masses‬‭in‬‭the‬‭banks‬
‭○‬ ‭Growth‬‭in‬‭the‬‭small‬‭scale‬‭industries‬‭leading‬‭to‬‭increase‬‭in‬‭funds‬‭and‬‭economic‬‭growth‬
‭○‬ ‭Increased‬‭penetration‬‭of‬‭the‬‭banks‬‭with‬‭motive‬‭transitioning‬‭from‬‭profit‬‭to‬‭service,‬
‭especially‬‭in‬‭the‬‭rural‬‭areas‬
‭○‬ ‭Stabilization‬‭of‬‭costs‬‭as‬‭essential‬‭goods‬‭supply‬‭increased‬
‭○‬ ‭Competition‬‭alleviation‬‭and‬‭increase‬‭in‬‭the‬‭working‬‭efficiency‬‭and‬‭performance‬‭of‬‭the‬
‭banks‬
‭○‬ ‭Banks‬‭Nationalized‬‭at‬‭that‬‭time‬‭were‬‭-‬‭Allahabad‬‭Bank,‬‭Bank‬‭of‬‭India,‬‭Central‬‭Bank‬‭of‬‭India‬
‭Punjab‬‭National‬‭Bank,‬‭Union‬‭Bank‬‭etc‬


‭History‬‭of‬‭Banking‬‭in‬‭India‬‭Liberalization-‬‭Present‬‭Scenario‬
‭The‬‭structure‬‭of‬‭banking‬‭in‬‭India‬‭has‬‭been‬‭broadly‬‭divided‬‭into‬‭organized‬‭sectors‬‭and‬
‭unorganized‬‭sectors.‬‭Organized‬‭sector‬‭comprises‬‭the‬‭RBI,‬‭commercial‬‭banks,‬‭cooperative‬‭banks,‬
‭and‬‭specialized‬‭financial‬‭institutions‬‭like‬‭the‬‭ICICI,‬‭IFC,‬‭etc.‬‭The‬‭unorganized‬‭sector‬‭is‬‭the‬‭one‬
‭that‬‭is‬‭not‬‭regulated‬‭by‬‭the‬‭government‬‭or‬‭the‬‭RBI.‬‭Such‬‭bodies‬‭are‬‭highly‬‭vulnerable‬‭towards‬