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Banking related General Awareness - Descriptive posted on September 1, 2011



email to samba.ssivan@gmail.com ( S SAMBASIVAN)


Modern Day Banking in India – Different Phases.

Establishment of Reserve Bank of India
Indian banking system, over the years has gone through various phases after establishment of Reserve Bank of India in 1935 during the British rule, to function as Central Bank of the country. Earlier to creation of RBI, the central Bank functions were being looked after by the Imperial Bank of India. With the 5-year plan having acquired an important place after the independence, the Govt. felt that the private banks may not extend the kind of cooperation in providing credit support the economy may need. In 1954 the All India Rural Credit Survey Committee submitted its report recommending creation of the strong, integrated, State-sponsored, State-partnered commercial banking institution with an effective machinery of branches spread all over the country. The recommendations of this committee led to establishment of first Public Sector Bank in the name of the then Imperial Bank of India. Similarly during 1956-59, as a result of re-organisation of princely States, the associate banks came into fold of public sector banking.

Social Banking

Another evaluation of the banking in India was undertaken during 1966 as the private banks were still not extending the required support in the form of credit disbursal, more particularly to the unorganized sector. Each leading industrial house in the country at that time was closely associated with the promotion and control of one or more banking companies. The bulk of the deposits collected, were being deployed in organized sectors of industry and trade, while the farmers, small entrepreneurs, transporters, professionals and self-employed had to depend on money lenders who used to exploit them by charging higher interest rates. In February 1966, a scheme of social control was set up whose main function was to periodically assess the demand for bank credit from various sectors of the economy to determine the priorities for grant of loans and advances so as to ensure optimum and efficient utilization of resources. The scheme however, did not provide any remedy. Though a no. of branches were opened in rural area but the lending activities of the private banks were not oriented towards meeting the credit requirements of the priority/weaker.


On July 19, 1969, the Govt, promulgated Banking Companies (Acquisition and Transfer of Undertakings) Ordinance 1969 to acquire 14 bigger commercial bank with paid up capital of Rs.28.50 cr, deposits of Rs.2629 cr, loans of Rs.1813 cr and with 4134 branches accounting for 80% of advances. Subsequently in 1980, 6 more banks were nationalized which brought 91% of the deposits and 84% of the advances in Public Sector Banking. During December 1969, RBI introduced the Lead Bank Scheme on the recommendations of FK Nariman Committee.
Meanwhile, during 1962 Deposit Insurance Corporation was established to provide insurance cover to the depositors.

Post Nationalisation

In the post-nationalisation period, there was substantial increase in the no. of branches opened in rural/semi-urban centers bringing down the population per bank branch to 12000 appx. During 1976, RRBs were established (on the recommendations of M. Narashimham Committee report) under the sponsorship and support of public sector banks as the 3rd component of multi-agency credit system for agriculture and rural development. The Service Area Approach was introduced during 1989.
While the 1970s and 1980s saw the high growth rate of branch banking net-work, the consolidation phase started in late 80s and more particularly during early 90s, with the submission of report by the Narasimham Committee on Reforms in Financial Services Sector during 1991.

Different Phases

In these 5 decades since independence, banking in India has evolved through four distinct Phases:
Foundation Phase:
It can be considered to cover 1950s and 1960s till the nationalization of banks in 1969. The focus during this period was to lay the foundation for a sound banking system in the country. As a result, this phase witnessed the development of necessary legislative framework for facilitating re-organisation and consolidation of the banking system, for meeting the requirements of Indian economy. A major development was transformation of Imperial Bank of India into State Bank of India during 1955 and Nationalization of 14 major private banks during 1969.

Expansion Phase:
It has begun in mid-60s but gained momentum after nationalization of banks and continued till 1984. A determined effort was made to make banking facilities available to the masses. Branch network of the banks was widened at a very fast pace covering rural and semi-urban population which had no access to banking hitherto. Most importantly, the credit flows were guided towards the priority sectors.
However this weakened the lines of supervision and affected the quality of assets of banks and pressurized their profitability and brought competitive efficiency of the system at a low ebb.

Consolidation Phase:
The phase started in 1985 when a series of policy initiatives were taken by RBI, which saw marked slowdown in the branch expansion. Attention was paid to improving house keeping, customer service, credit management, staff productivity and profitability of banks. Measures were also taken to reduce the structural constraints that obstructed the growth of money market.

Reforms Phase:
The macro-economic crisis faced by the country in 1991 paved the way for extensive financial sector reforms which brought deregulation of interest rates, more competition, technological changes, prudential guidelines on asset classification and income recognition, capital adequacy, autonomy packages etc.


  1. it nice to who are appearing for bank po exam and interview

  2. thanks. happy new year 2012 to you and all the readers.


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