Class 12 
                    Banking : Notes                                           
                    Unit -1                                                                                                                    
                    Commercial Banking in India 
                    TOPIC – 1 : ORIGIN AND GROWTH OF BANKS IN INDIA 
                    Banking sector in India has got a long history and has traversed a long path to reach at the 
                    modern stage. The growth of banking industry and banking practices had not been easy. It 
                    involved many hurdles and impediments which appeared as obstacles in the path of its growth. 
                                                                    Growth of Banking
                                               Pre-Independence                        Post-Independence
                                                      Vedic Period                           Pre-Economic Reform 
                                                                                                      Period
                                                    MoghulPeriod                            Post- Economic Reform 
                                                                                                       Period
                                                     British Period                                                                  
                        •    Between 2000 to 1400 B.C., during the Vedic era, records of saving money as deposits 
                             were found. 
                        •    Manu, the Hindu Law giver, in ‘Manusmriti’  mentioned about rules of giving interest on 
                             savings and suggested for keeping money under the safe custody of a person with another 
                             who has -  
                        - good conduct/character                    - good family background              - knowledge of the Law 
                        - many relatives                            - riches and wealth                   - honour & respect in society  
                         
                         
                         
                        •    In the ‘Artha-Shastra’ written by Chanakya or Kautilya also mentioned about rules and 
                             need of saving money and earn income on it. 
                        •    During the period of Mahabharata, there was practices of using Hundis. 
                     
                     
                     
                     
                                                                                                                                                  
                     
                        •    Indigenous bankers were lending money and financing trade activities. 
                        •    Hundis were used as trade instruments. 
                        •    ‘The House of Jagat Seth’, was a famous indigenous banker during Moghul period.. 
                        •    Indigenous bankers gradually lost their importance. 
                        •    With East India Company’s growth in business, the requirement of bank was felt. 
                        •    Agency Houses emerged as organizations supporting East India Company’s business as 
                             well as providing the basic banking services to the British and the company. 
                        •    Agency Houses  combined banking with other trade-supporting activities, and it was a 
                             difficulty due to which these couldn’t sustain longer. 
                                                       Growth of             Pre-                British Era
                                                        Banking         Independence
                                                      Agency Houses during the colonial regime:
                                                                                            Year 1900
                                                      • M/sAlexander&Co.
                                                      • M/sFergussan &Co.
                                                      • First bank started in India
                                                        unedr    British   rule   was
                                                        ‘Bank    of   Hindostan’    in      Year 2014
                                                        1770.
                                                      • This         bank         was
                                                        closed/liquidated in 1832.
                                                                                                               
                   •  After the closure of Bank of Hindostan, the British Govt. established 3 PRESIDENCY 
                      BANKS in India: Bank of Calcutta which later was renamed as Bank of Bengal (1906), 
                      Bank of Bombay (1840), Bank of Madras (1843) 
                                                                                                         
                        •    Principle of Limited Liability was introduced in 1860. This resulted in the emergence of 
                             many banks. 
                        •    Banks started operating as Joint Stock Banks. 
                        •    SWADESHI MOVEMENT further prompted many Indians to start their own banking 
                             activities by establishing small banks to finance their own requirements and avoid taking 
                             services of the banks established by the British. 
                        •    Bank of Baroda, Central Bank of India,  
                             Indian Bank, Bank of India etc. were set up at  
                             that time.           
                        •    British Government felt the need of a central bank. 
                                     th
                        •    On 27  January, 1921, The Imperial Bank of  
                             India was established by merging the  
                             3 presidency banks.