Study On Credit Appraisal

History of Banking in India

Without a sound and effective banking system, no country can have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet
new challenges posed by the technology and other external and internal factors.

For the past three decades India's banking system has several outstanding achievements to its credit. Themost striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process.

The government's regulated policy for Indian banks since 1969 has paid rich dividends with the nationalisation of 14 major private banks ofIndia.

Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days. Now it is simple as instant messaging or dial a pizza. Money has become the order of the day.

The first bank in India, thoughconservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below:
• Early phase from 1786 to 1969 of Indian Banks
• Nationalisation of Indian Banks and up to 1991 prior to Indian banking sector
reforms.
• New phase of Indian Banking System with the advent of Indian Financial & Banking SectorReforms after 1991.

History of Indian Banking can be better understood by dividing the same into 3 phases namely, Phase I, Phase II and Phase III.

Phase I
The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and calledit Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders.

In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore.
Between 1906 and 1913, Bank of India, Central Bank of India,Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set up. Reserve Bank of India came in 1935.

During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The BankingCompanies Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of India was vested with extensive powers for the supervision of banking in india as the Central Banking Authority.

During those day’s public has lesser confidence in the banks. As an aftermath deposit mobilisation was slow. Abreast of it the savings bankfacility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders.

Phase II
Government took major steps in this Indian Banking Sector Reform after independence. In 1955, it nationalised Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. It formed State Bank of india to act as the principalagent of RBI and to handle banking transactions of the Union and State Governments all over the country.

Seven banks forming subsidiary of State Bank of India was nationalised in 1960 on 19th July, 1969, major process of nationalisation was carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country was nationalised....