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.
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-
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:
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.
After India gained independence in 1947, the government undertook significant steps to reform the banking sector. The functions of banking during this period included:
In the early 1990s, India adopted economic liberalization policies, and the banking sector underwent significant changes. The functions of banking during this period included:
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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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.
Important milestones in Indian banking regulation:
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.
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.
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.