What is the role of banking sector in the economic development of India?
Banking in India originated in the last decades of the 18th Century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1770; both are now defunct. 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 become 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 three banks merged in 1921 to from The Imperial Bank of India, which upon India’s independence, become the State of India in 1955.
In 1969, The Government of India issued an ordinance (‘Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969’) and nationalized the 14 largest commercial banks with effect from the midnight of July 19, 1969. These banks contained 85 per cent of bank deposits in the country.
The IT revolution had a great impact in the Indian banking system. The use of computers had led to introduction of online banking in India.
In 1994, Committee on Technology issues relating to Payment System, Cheque Clearing and Securities Settlement in the Banking Industry (1994) was set up with chairman Shri WS Saraf, Executive Director, Reserve Bank of India. It emphasized on Electronic Funds Transfer (EFT) system, with the BANKNET communications network as its carrier. It also said that MICR clearing should be set up in all branches of all banks with more than 100 branches.
Committee for proposing Legislation on Electronic Funds Transfer and other Electronic Payment (1995) emphasized on EFT system. Electronic banking refers to Doing Banking by using technologies like computers, internet and networking, MICR, EFT so as to increase efficiency, quick service, productivity and transparency in the transaction.
Apart from the above mentioned innovations the banks have been selling the third party products like Mutual Funds, insurances to its clients. Total numbers of ATMs installed in India by various banks as on end March 2005 is 17,642.