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History, Structure & Types of Banking

Part-I: History of Banking

The Vedas (2000–1400 BCE) are the earliest Indian texts to mention the concept of usury. The Sutras (700–100 BCE) and the Jatakas (600–400 BCE) also mention usury. The Manusmriti considers usury an acceptable means of acquiring wealth or leading a livelihood. It also considers money lending above a certain rate, different ceiling rates for different caste, a grave sin.

The Jatakas also mention the existence of loan deeds. These were called rnapatra or rnapanna. The Dharmashastras also supported the use of loan deeds. Kautilya has also mentioned the usage of loan deeds. Loans deeds were also called rnalekhaya.

Later during the Mauryan period (321–185 BCE), an instrument called adesha was in use, which was an order on a banker directing him to pay the sum on the note to a third person, which corresponds to the definition of a modern bill of exchange. The considerable use of these instruments has been recorded. In large towns, merchants also gave letters of credit to one another.

Origin of Modern Banking Industry in India

Who were the indigenous bankers of India?

The use of loan deeds continued into the Mughal era and was called dastawez. Two types of loans deeds have been recorded. The dastawez-e-indultalab was payable on demand and dastawez-e-miadi was payable after a stipulated time. The use of payment orders by royal treasuries, called barattes, have been also recorded.

There are also records of Indian bankers using issuing bills of exchange on foreign countries. The evolution of hundis, a type of credit instrument, also occurred during this period and remain in use.

Which is the first bank of India?

The first banks were The General Bank of India, which started in 1786, and the Bank of Hindustan, both of which are now defunct.

What were the three Presidency Banks? When they were established?

The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company.

For many years the Presidency banks acted as quasi-central banks, as did their successors. The East India Company established Bank of Bengal, Bank of Bombay and Bank of Madras as independent units and called it Presidency Banks. The three banks merged in 1925 to form the Imperial Bank of India, which, upon India’s independence, became the State Bank of India.

Which is the oldest joint stock bank of India?

The first joint stock bank was Bank of Upper India,  which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Shimla.

Which were the first banks owned/managed by Indians?

The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1888 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has survived to the present and is now one of the largest banks in India.

Which was the first bank to open a branch at foreign soil?

Bank of India was the first Indian bank to open a branch outside India in London in 1946 and the first to open a branch in continental Europe at Paris in 1974.

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