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Banking Through the Ages: Tracing the Evolution of Banking in India

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August 9, 2023


What’s Inside

Banking is a crucial aspect of societies worldwide and has been present in many cultures independently. India is no exception and has a rich history of banking before modern banking took hold.

In ancient and medieval periods, banking was informal and based on local community practices. Wealthy individuals and temples acted as storage for deposits and financial services. They protected valuables and acted as custodians of wealth. Banking also included facilitating trade and lending money.

Evolution of Banking in India

The Banking Companies Act of 1949 defines banking systems in India and governs the banking industry, which is essential to the country's economic growth. The Indian banking system comprises private, regional, rural, cooperative, public, scheduled, and unscheduled commercial banks. Let us take a look at the different phases and developments in the evolution of banking in India-

1. Pre-Independence Era (15th Century - 1947):

During British rule, modern banking institutions emerged with the primary aim of managing government finances and facilitating trade and commerce. The functions of banking during this period included:

  • Presidency Banks: The Bank of Bengal (1809), Bank of Bombay (1840), and Bank of Madras (1843) were established under royal charters to manage the British East India Company's finances and support its commercial activities.
  • Note Issuance: Presidency banks issued their own currency notes, initially in limited regions, which later expanded to broader territories.
  • Government Banking: Presidency banks served as bankers to the government, managing its receipts and payments, and underwriting government loans.

Some Presidency Banks were merged into one to become the Imperial Bank, which later became the State Bank of India and laid the foundation for the modern banking system in India.

2. Post-Independence Era (1947 - 1990):

After India gained independence in 1947, the government undertook significant steps to reform the banking sector. The functions of banking during this period included:

  • Nationalization: In 1969, the government nationalized 14 major banks, with a focus on promoting financial inclusion and directing credit towards priority sectors like agriculture and small industries. This move aimed to reduce regional imbalances and ensure credit availability to underserved sections of society.
  • Priority Sector Lending: Nationalized banks were directed to allocate a specified portion of their lending to priority sectors like agriculture, small-scale industries, and weaker sections of society.
  • Rural Branch Expansion: Nationalized banks were encouraged to open branches in rural and semi-urban areas to extend banking services to the unbanked and underbanked populations.

In the early 1990s, India adopted economic liberalization policies, and the banking sector underwent significant changes. The functions of banking during this period included:

  • Entry of Private and Foreign Banks: The government allowed private and foreign banks to operate in India, ending the monopoly of public sector banks and introducing competition in the banking sector.
  • Technological Advancements: With liberalization, banks started adopting modern technology, introducing online banking, ATMs, and electronic fund transfers to improve customer service and convenience.
  • Foreign Investment: Foreign banks and financial institutions were permitted to invest and set up subsidiaries in India, leading to the entry of multinational banks into the Indian market. Some popular foreign banks in India are Citibank, HSBC and DBS Bank.

3. Modern Banking (Early 2000s - Present):

  • Technology and Digitalization: With advancements in technology, the banking sector in India witnessed a digital revolution. Online banking, mobile banking, ATMs, and electronic fund transfers became prevalent, providing customers with greater convenience and accessibility to banking services. Fintech companies and digital payment platforms disrupted the traditional banking model, leading to a surge in digital transactions.
  • Financial Inclusion and Microfinance: During this phase, there was an increased emphasis on financial inclusion, especially for the unbanked and underbanked population. Microfinance institutions and self-help groups played a significant role in providing small loans, savings, and insurance products to marginalized sections of society, promoting financial empowerment.
  • Fintech and Innovation: The fintech revolution has gained momentum in India, with numerous startups and technology-driven companies entering the financial services space. Digital payment platforms, mobile wallets, peer-to-peer lending, and robo-advisory services have reshaped the way banking and financial services are delivered.


Banking in India has come a long way, evolving from ancient times to modern technology-driven services. The sector has adapted to changing economic landscapes, undergone significant reforms, and played a vital role in promoting financial inclusion and growth. Fintech revolution and technological advancements have popularized online banking, making it the main focus for established and innovative financial institutions alike.

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Frequently Asked Questions

1. How has technology driven the evolution of banking in India?

Technology has transformed banking in India with the introduction of online banking, mobile apps, ATMs, and digital payment platforms. These have improved customer convenience, access to services, and enabled faster and more secure transactions, promoting financial inclusion.

2. What are the key milestones in the evolution of Indian banking regulations?

Important milestones in Indian banking regulation:

  • Establishment of the Reserve Bank of India (RBI) as central authority in 1935
  • Nationalization of major banks in 1969
  • Economic liberalization in the 1990s
  • Implementation of the Insolvency and Bankruptcy Code (IBC) in 2016

3. How has the role of banks evolved in promoting financial inclusion in India?

Banks in India promote financial inclusion by expanding their branches, offering basic accounts, and lending to priority sectors. They also use technology, partner with microfinance institutions, and participate in government schemes like Pradhan Mantri Jan Dhan Yojana to improve financial inclusion.

4. What are the challenges faced by the Indian banking sector in its evolution?

The Indian banking sector faces challenges such as high non-performing assets, inadequate capitalization, governance and cybersecurity issues, competition from fintechs, economic fluctuations, regulatory complexities, and addressing financial inclusion for marginalized populations.

5. How has the evolution of banking in India impacted the country's economic growth?

Banking in India has positively impacted economic growth by promoting financial inclusion, credit for priority sectors, entrepreneurship, trade, and investment. Technological advancements have improved efficiency, capital mobilization, and contributed to overall economic development.


Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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Banking Through the Ages: Tracing the Evolution of Banking in India


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