Dear Indian friends, this article, or rather series of articles published in this site under the penname of ‘Tukun’, is meant for those of you who are preparing to appear for written examinations as well as 'Interview' for various posts in Indian banks – whether clerical, P.O. or otherwise. It addresses all relevant queries relating to ‘banking’, as part of ‘General Awareness’ or separate Paper on the topic. Most books available in the market on this topic are a random collection of objective type questions and answers, rarely arranged in the order the questions and answers should be studied to get a good and easy grasp of the subject. Therefore, while leaving you free to go through such books at your will, this series is aimed at providing you a complimentary short but reasonably detailed self-sufficient course on 'Modern Banking', which, you will find, enables you to answer 95% of the objective questions relating to ‘banking’ in competitive examinations.

I intend to start another 2 similar series for bank job seekers after finishing this series – one on ‘computer awareness’ and another on ‘marketing’, which often form part of the syllabus for written examinations for bank jobs, mostly for the post of ‘Probationary Officers’. However, those of you, who like this series and wish to get the next two series in full without waiting for the course to unfold over a no. of lessons, may e-mail me their desire at: This email address is being protected from spambots. You need JavaScript enabled to view it..

So, here we go. This is the 1st article of the series

What is a ‘bank’?

A bank is a financial institution or organisation which essentially:
a)    accepts deposits through cash or cheques,
b)    allows cash withdrawals from such deposits or payments by deposit holders to third parties by selected negotiable instruments’ like 'cheque' and ‘Bill of Exchange’, or bank draft, or bank ‘pay order’, as per rules for operating different deposit accounts and for payments to third parties,
c)    lends the surplus money lying in deposits to retail individuals or corporate entities for different terms and purposes.

Thus, a bank plays a significant role in the economy of a nation:
§    It encourages savings habit amongst people and thereby makes funds available for productive use.
§    It acts as an intermediary between people having surplus money and those requiring money for various business activities.
§    It facilitates business transactions through receipts and payments by cheques instead of currency.
§    It provides loans and advances to businessmen for short, medium and long terms
§    It also facilitates import-export transactions.
§    It helps in national development by providing credit to farmers, small-scale industries and self-employed people as well as to large business houses which lead to balanced economic development in the country.
§    It helps in raising the standard of living of people in general by providing loans for purchase of consumer durable goods, houses, automobiles, etc.

Banking in India

The development of banking in India can be divided broadly into 3 phases:

I.    1st Phase: Setting up and slow growth of banks

(1)    ‘General Bank of India’ was 1st bank set up in 1786, followed by ‘Bank of Hindustan’.
(2)    The ‘East India Co.’ then established ‘Bank of Bengal’ in 1809, ‘Bank of Bombay’ in 1840 and ‘Bank of Madras’ in 1843, and called them together 'Presidency Banks’
(4)    In 1865, ‘Allahabad Bank’ was set up at Allahabad, followed by exclusively Indian ‘Punjab National Bank’ in 1894 with headquarter in Lahore, then ’Bank of India’, ‘Central Bank of India’, ‘Bank of Baroda’, ‘Canara Bank’, ‘Indian Bank’ and ‘Bank of Mysore’ between 1906 and 1913.
(3)    In 1920, the ‘Presidency Banks’ were amalgamated to form ‘Imperial Bank of India’ as a bank of private shareholders, mostly Europeans.
(5)    ‘Reserve Bank of India’ (RBI) was established in 1935

Growth was slow in 1st phase, with periodic failures between 1913 and 1948. Govt. promulgated the ‘Banking Companies Act’, 1949, to regulate banking activity and vest RBI with extensive supervisory powers over all other banks, as the Central Banking Authority. The Act was later renamed ‘Banking Regulaion Act’, 1949, as per amendment no. 23 of  1965

II. 2nd Phase: Nationalisation

1955: ‘Imperial Bank’ nationalized and renamed ‘State Bank of India’ (SBI), to act as principal agent of RBI in handling countrywide banking transactions.
1959: SBI subsidiaries nationalized
1961: Deposits covered by insurance against theft, burglary, etc.
1969: 14 major banks, mostly owned by private businessmen, nationalized – Central Bak of India, Bank of Maharashtra, Dena Bank, Punjab National Bank (PNB), Syndicate Bank, Canara Bank, Indian Bank, Bank of Baroda (BOB), Union Bank, Allahabad bank, United Bank of India (UBI), United Commercial (UCO) Bank, Bank of India (BOI)
1971: ‘Credit Guarantee Corporation’ created, to guarantee compensation of irrecoverable credit by banks and other financial institutions
1975: ‘Regional Rural Banks’ created to cater to special credit needs of rural poor
1980: 7 more banks with deposits over Rs. 200 crore each nationalised

After nationalization, deposits of Public Sector bank branches together rose by approximately 800% and advances by a huge 11,000 %. State Bank of India (SBI) is today India’s largest commercial bank and is ranked one of the top 5 banks in the world. Till 2006, about 80% of the banking system in India was under Govt. control.

III. 3rd Phase: Reforms

In 1991, the ‘Narasimhham Committee’ was formed under M. Narasimham as Chairman, to recommend financial reforms, including banking sector liberalizations. Following such recommendations, foreign banks were allowed significant entry, and new banking technologies and products adopted in the advanced countries were introduced – ‘Automatic Teller Machines’ (ATMs), ‘Internet’ or simply ‘Net’ banking, 'Phone' banking, etc,.

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