Master10
Banking & Financial Awareness Module

Banking History & Nationalisation in India

The evolution of modern Indian banking traces back to the Bank of Hindostan (1770) and the amalgamation of the three Presidency Banks into the Imperial Bank of India in 1921, which later became the State Bank of India (SBI) in 1955 following the Gorwala Committee report. A defining structural transition occurred with bank nationalization: the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance of July 19, 1969, nationalized 14 major commercial banks, followed by a second wave nationalizing 6 more banks in April 1980. Today, the Indian banking architecture integrates scheduled commercial banks with digital payment rails developed by NPCI, including NEFT, RTGS, and UPI.

Key Concepts & Examination Highlights

  • The State Bank of India (SBI) was established on July 1, 1955, by nationalizing the Imperial Bank of India under the State Bank of India Act, 1955.
  • On July 19, 1969, the Government of India nationalized 14 major commercial banks having deposits exceeding ₹50 crore each under Prime Minister Indira Gandhi.
  • A second phase of bank nationalization took place on April 15, 1980, nationalizing 6 commercial banks with deposits exceeding ₹200 crore each.
  • The National Payments Corporation of India (NPCI), established in 2008 by RBI and IBA under the Payment and Settlement Systems Act, 2007, launched Unified Payments Interface (UPI) in 2016.
  • Bank of Hindostan, established in 1770 in Calcutta by Alexander and Company, was the earliest modern commercial bank set up in India.
  • The three Presidency Banks—Bank of Bengal (1806), Bank of Bombay (1840), and Bank of Madras (1843)—were merged in 1921 to form the Imperial Bank of India.
  • Punjab National Bank, founded in 1894 in Lahore by figures including Lala Lajpat Rai, was the first purely Indian-managed bank that survives today.
  • Allahabad Bank, established in 1865, was the oldest joint-stock bank in India before its amalgamation with Indian Bank in 2020.
  • The Narasimham Committee I (1991) and II (1998) recommended deregulation of interest rates, introduction of prudential norms, and structural reduction of CRR and SLR.
  • Deposit Insurance and Credit Guarantee Corporation (DICGC), a wholly-owned subsidiary of the RBI, insures bank deposits up to ₹5 lakh per depositor per bank.
  • Real Time Gross Settlement (RTGS) enables continuous, real-time gross settlement of funds for high-value transactions with a minimum limit of ₹2 lakh.
  • Immediate Payment Service (IMPS), introduced by NPCI in 2010, provides an instant round-the-clock interbank electronic fund transfer service across mobile and digital channels.
  • Oudh Commercial Bank, established in 1881 in Faizabad, was the first commercial bank in India with limited liability managed exclusively by an Indian board of directors.
  • The Swadeshi Movement (1905) catalyzed the establishment of prominent Indian banks, including Bank of India (1906), Canara Bank (1906), Indian Bank (1907), Bank of Baroda (1908), and Central Bank of India (1911).
  • Central Bank of India, established in 1911 by Sir Sorabji Pochkhanawala, is regarded as the first purely indigenous joint-stock bank managed and owned entirely by Indians.
  • The 14 banks nationalized in 1969 included Central Bank of India, Bank of India, Punjab National Bank, Bank of Baroda, United Commercial Bank, Canara Bank, and Dena Bank.
  • The 6 banks nationalized in the second phase in 1980 were Andhra Bank, Corporation Bank, New Bank of India, Oriental Bank of Commerce, Punjab & Sind Bank, and Vijaya Bank.
  • New Bank of India was merged with Punjab National Bank in 1993, marking the only merger between two nationalized banks prior to the mega-mergers of 2019–20.
  • On April 1, 2017, the State Bank of India merged with its five associate banks (State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore) and Bharatiya Mahila Bank.
  • In the mega-consolidation of Public Sector Banks effective April 1, 2020, ten public sector banks were merged into four, reducing the total count of PSBs to 12.
  • Under the 2020 mega-merger, Oriental Bank of Commerce and United Bank of India merged into Punjab National Bank, Syndicate Bank merged into Canara Bank, Andhra Bank and Corporation Bank merged into Union Bank of India, and Allahabad Bank merged into Indian Bank.
  • National Electronic Funds Transfer (NEFT), maintained by the RBI, was transitioned into a 24x7x365 settlement system operating in half-hourly batches starting December 2019.
  • The Cheque Truncation System (CTS), introduced in 2008 by the RBI, replaced the physical movement of cheques with electronic image-based processing to expedite cheque clearance.
  • Bharat Bill Payment System (BBPS) is an integrated interoperable bill payment ecosystem conceptualized by the RBI and operated by NPCI Bharat BillPay Limited.
  • RuPay is an indigenous domestic card payment network launched by the National Payments Corporation of India (NPCI) in March 2012 to reduce dependency on international card networks.
  • The Bank of Hindostan, established in 1770 in Calcutta by the agency house of Alexander and Company, is historically recognized as the first modern joint-stock bank established in India.
  • The General Bank of India was founded in 1786 in Calcutta as an early joint-stock banking venture, operating until its liquidation in 1791.
  • The Bank of Bengal was founded in 1806 as the Bank of Calcutta and incorporated in 1809, serving as the first of three historic British Presidency Banks.
  • The Bank of Bombay was established in 1840 and the Bank of Madras was established in 1843, completing the trio of Presidency Banks that held government banking accounts and issued early currency notes.
  • The three Presidency Banks were amalgamated on 27 January 1921 under the Imperial Bank of India Act, 1920, creating the Imperial Bank of India as a quasi-central bank with commercial branches.
  • The All India Rural Credit Survey Committee (A.D. Gorwala Committee) recommended in 1954 the creation of a state-partnered commercial bank by taking over the Imperial Bank of India.
  • The State Bank of India Act, 1955, transformed the Imperial Bank of India into the State Bank of India (SBI) on 1 July 1955, vesting majority shareholding with the Reserve Bank of India.
  • Under the State Bank of India (Subsidiary Banks) Act, 1959, eight princely state-associated banks were brought under the SBI umbrella as subsidiary associate banks in 1959-60.
  • The First Major Bank Nationalisation occurred on 19 July 1969 through an ordinance promulgated by Prime Minister Indira Gandhi, nationalizing 14 major commercial banks with deposits exceeding Rs 50 crore.
  • Under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, compensation of Rs 87.40 crore in aggregate was paid by the Central Government to the shareholders of the 14 nationalized commercial banks.
  • The Second Major Bank Nationalisation took place on 15 April 1980, nationalizing 6 commercial banks whose demand and time liabilities exceeded Rs 200 crore: Andhra Bank, Corporation Bank, New Bank of India, Oriental Bank of Commerce, Punjab & Sind Bank, and Vijaya Bank.
  • New Bank of India was merged into Punjab National Bank in September 1993, marking the only merger between two nationalized banks prior to the mega-mergers of 2019-20.
  • Regional Rural Banks (RRBs) were established under the Regional Rural Banks Act, 1976, following the recommendations of the Narasimham Working Group on Rural Credit.
  • Prathama Bank, established on 2 October 1975 at Moradabad in Uttar Pradesh and sponsored by Syndicate Bank, was the first Regional Rural Bank founded in India.
  • The share capital of Regional Rural Banks is statutorily subscribed in the proportion of 50% by the Central Government, 15% by the concerned State Government, and 35% by the Sponsor Bank.
  • The Narasimham Committee on the Financial System (1991) recommended lowering statutory reserve ratios (CRR and SLR), introducing prudential asset classification, and permitting new private sector banks.
  • The Narasimham Committee on Banking Sector Reforms (1998) recommended capital adequacy convergence with Basel norms, legal reforms for NPA recovery, and structural consolidation of public sector banks.
  • State Bank of India merged with its five associate banks (State Bank of Bikaner & Jaipur, Hyderabad, Mysore, Patiala, Travancore) and the Bharatiya Mahila Bank on 1 April 2017.
  • Bank of Baroda completed the three-way amalgamation of Dena Bank and Vijaya Bank on 1 April 2019, creating India's second-largest public sector bank at the time.
  • The Mega-Merger of Public Sector Banks effective 1 April 2020 consolidated 10 public sector banks into 4 anchor institutions, reducing the total count of PSBs in India to 12.
  • Under the 2020 mega-mergers, Oriental Bank of Commerce and United Bank of India were amalgamated into Punjab National Bank (PNB).
  • Syndicate Bank was amalgamated into Canara Bank, while Andhra Bank and Corporation Bank were amalgamated into Union Bank of India on 1 April 2020.
  • Allahabad Bank, the oldest joint-stock bank continuously operating in India (founded in 1865 in Allahabad), was merged into Indian Bank on 1 April 2020.
  • The Verma Committee (1999) on Restructuring Weak Public Sector Banks identified Indian Bank, UCO Bank, and United Bank of India as structurally weak and proposed comprehensive revival strategies.
  • The R.V. Gupta Committee (1998) recommended simplifying loan documentation, delegating branch powers, and designing flexible loan products for agricultural borrowers, culminating in the Kisan Credit Card.
Curriculum & Reference Sources: Reserve Bank of India History Volumes, State Bank of India Archives, and NPCI Publications.

Sample Solved Questions & Concept Explanations

8 Verified Concept Questions
Q1.EASY

Which bank was established in 1894 at Lahore as the first purely Indian bank managed solely by Indians with Indian capital?

Q2.EASY

National Bank for Agriculture and Rural Development (NABARD) was established on 12 July 1982 on the recommendations of which committee?

Q3.EASY

Where is the head office of the Small Industries Development Bank of India (SIDBI) situated?

Q4.EASY

Which statutory organization functions as the umbrella institution for operating retail payments and settlement systems in India?

Q5.EASY

In which year was the Unified Payments Interface (UPI) system launched in India by NPCI?

Q6.MEDIUM

On 1 April 2017, five Associate Banks of SBI along with which other financial entity were merged into State Bank of India?

Q7.HARD

The Royal Commission on Indian Currency and Finance (1926) whose report led directly to the establishment of the RBI was officially chaired by whom?

Q8.HARD

The All India Rural Credit Survey Committee (1954), which recommended the creation of State Bank of India by taking over Imperial Bank, was headed by whom?