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Banking in India Originated in the last decades of the 18th century. The oldest in existence in India is the State , a government-owned bank that traces its origins back to June 1806 and that is the largest commercial bank in the country. Central banking is the responsibility of the , which in 1935 formally took over these responsibilities from the then , relegating it to commercial banking functions. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial ; the government nationalized the six next largest in 1980.

Currently, India has 96 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively History

Banking in India originated in the last decades of the 18th century. The first banks were The which started in 1786, and the Bank of Hindustan, both of which are now defunct. The oldest bank in existence in India is the , which originated in the in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the and the , 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 form the Imperial Bank of India, which, upon India's independence, became the State Bank of India.

Indian merchants in Calcutta established in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49. The Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India. It was not the first though. That honor belongs to the 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 .

When the American Civil War stopped the supply of cotton to Lancashire from the Confederate States, promoters opened banks to finance trading in Indian cotton. With large exposure to speculative ventures, most of the banks opened in India during that period failed. The depositors lost money and lost interest in keeping deposits with banks. Subsequently, banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century.

Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Pondichery, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center.

The Bank of Bengal, which later became the State Bank of India.

The first entirely Indian joint stock bank was the , established in 1881 in . It failed in 1958. The next was the , established in in 1895, which has survived to the present and is now one of the largest banks in India.

Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities.

The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments."

The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, , , , and of India.

The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South Canara ( South Kanara ) district. Four nationalised banks started in this district and also a leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking". From World War I to Independence

The period during the First World War (1914-1918) through the end of the Second World War (1939-1945), and two years thereafter until the independence of India were challenging for Indian banking. The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian economy gaining indirect boost due to war-related economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in the following table:

Number of banksAuthorised capitalPaid-up Capital Years that failed (Rs. Lakhs) (Rs. Lakhs)

1913 12 274 35

1914 42 710 109

1915 11 56 5

1916 13 231 4

1917 9 76 25

1918 7 209 1

Post-independence The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included:

• In 1948, the Reserve Bank of India, India's central banking authority, was nationalized, and it became an institution owned by the Government of India. • In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." • The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.

However, despite these provisions, control and regulations, banks in India except the State Bank of India, continued to be owned and operated by private persons. This changed with the nationalisation of major banks in India on 19 July 1969.

Nationalisation By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the possibility to nationalise the banking industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the GOI in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969.

A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the GOI controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged with Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy. The nationalised banks were credited by some, including Home minister P. Chidambaram, to have helped the Indian economy withstand the global financial crisis of 2007-2009.

Nationalization, also spelled nationalisation, is the act of taking an industry or assets into the public ownership of a national government or state. Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities, being state operated or owned by the state. The opposite of nationalization is usually privatization or de- nationalisation, but may also be municipalization. A renationalization occurs when state-owned assets are privatized and later nationalized again, often when a different political party or faction is in power. A renationalization process may also be called reverse privatization.

The motives for nationalization are political as well as economic. It is a central theme of certain brands of 'state socialist' policy that the means of production, distribution and exchange, should be owned by the state on behalf of the people to allow for rational allocation and operation, and rational planning or control of the economy. Many socialists believe that public ownership enables people to exercise full democratic control over the means whereby they earn their living and provides an effective means of distributing output to benefit the public at large, such as providing a means of public finance. Nationalized industries, charged with operating in the public interest, may be under strong political and social pressures to give much more attention to externalities. They may be obliged to operate some loss making activities where social benefits are clearly greater than social costs - for example, rural, postal and transport services. As an instance, the United States Postal Service is guaranteed its nationalised status by the Constitution. The government has recognized these social obligations and, in some cases, provides subsidies for such non-commercial operations.

Since the nationalised industries are state owned, the government is responsible for meeting any debts incurred by these industries. The nationalized industries do not normally borrow from the domestic market other than for short-term borrowing. However, if profitable, the profit is often used as a means to finance other state services such as social programs and government research which can help lower the tax burden.

Nationalization may occur with or without compensation to the former owners. If it takes place without compensation it is a case of expropriation. Nationalization is distinguished from property redistribution in that the government retains control of nationalized property. Some nationalizations take place when a government seizes property acquired illegally. For example, the French government seized the car-makers Renault because its owners had collaborated with the Nazi occupiers of France.

Compensation A key issue in nationalization is payment of compensation to the former owner. The most controversial nationalizations, known as expropriations, are those where no compensation, or an amount far below the likely market value of the nationalized assets, is paid. Many nationalizations through expropriation have come after revolutions.

The traditional Western stance on compensation was expressed by United States Secretary of State Cordell Hull, during the 1938 Mexican nationalization of the petroleum industry, that compensation should be "prompt, effective and adequate." According to this view, the nationalizing state is obligated under international law to pay the deprived party the full value of the property taken. The opposing position has been taken mainly by developing countries, claiming that the question of compensation should be left entirely up to the sovereign state, in line with the Calvo Doctrine. Communist states have held that no compensation is due, based on socialist notions of private properties.

In 1962, the United Nations General Assembly adopted Resolution 1803, "Permanent Sovereignty over National Resources", which states that in the event of nationalization, the owner "shall be paid appropriate compensation in accordance with international law." In doing so, the UN rejected both the traditional Calvo-doctrinist view and the Communist view. The term "appropriate compensation" represents a compromise between the traditional views, taking into account the need of developing countries to pursue reform even without the ability to pay full compensation, and the Western concern for protection of private property. When nationalizing a large business, the cost of compensation is so great that many legal nationalizations have happened when firms of national importance run close to bankruptcy and can be acquired by the government for little or no money. A classic example is the UK nationalization of the British Leyland Motor Corporation. At other times, governments have considered it important to gain control of institutions of strategic economic importance, such as banks or railways, or of important industries struggling economically. The case of Rolls-Royce plc, nationalized in 1971, is an interesting blend of these two arguments. This policy was sometimes known as ensuring government control of the "commanding heights" of the economy, to enable it to manage the economy better in terms of long-term development and medium-term stability. The extent of this policy declined in the 1980s and 1990s as governments increasingly privatized industries that had been nationalized, replacing their strategic economic influence with use of the tax system and of interest rates.

Nonetheless, national and local governments have seen the advantage of keeping key strategic assets in institutions that are not strongly profit-driven and can raise funds outside the public-sector constraints, but still retain some public accountability. Examples from the last five years in the United Kingdom include the vesting of the British railway infrastructure firm Railtrack in the not-for-profit company Network Rail, and the divestment of much council housing stock to "arms-length management companies", often with mutual status. The nationalised banks were credited by some, including Home minister P. Chidambaram, to have helped the Indian economy withstand the global financial crisis of 2007-2009.

• 1949 (1 January) Reserve Bank of India nationalised (Ref.- Reserve Bank of India chronology of events). The Reserve Bank of India was state-owned at the time of Indian independence. • 1953 Air India under the Air Corporations Act 1953. • 1955 Imperial Bank of India and its subsidiaries (State Bank of India and its subsidiaries) • 1969 Nationalization of 14 Indian banks. • 1973 Coal industry and Oil companies • 1980 Another six banks nationalized

Liberalisation

In the early 1990s, the then Narsimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, (earlier as UTI Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks.

The next stage for the Indian banking has been setup with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%,at present it has gone up to 74% with some restrictions.

The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks.All this led to the retail boom in India. People not just demanded more from their banks but also received more.

Currently (2007), banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true.

With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As, takeovers, and asset sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them.

In recent years critics have charged that the non-government owned banks are too aggressive in their loan recovery efforts in connection with housing, vehicle and personal loans. There are press reports that the banks' loan recovery efforts have driven defaulting borrowers to suicide.

List of banks in India

Public Sector Banks

There are total 27 public sector banks in India (As on 26-09-2009). Of these 19 are nationalised banks, 6( ALSO MEARGED RECENTLY) belong to SBI & associates group and 1 bank (IDBI Bank) is classified as other public sector bank.

Nationalised Banks

• • • Bank of Baroda • Bank of India • • Canara Bank • • Corporation Bank • • Indian Bank • • Oriental Bank of Commerce • Punjab & Sind Bank • Punjab National Bank • • UCO Bank • • •

SBI & associates • State Bank of India (State Bank of Saurastra merged with SBI in the year 2008 and State Bank of Indore in 2010) • • • • • State Bank of Bikaner and Jaipur

Private Banks

• Axis Bank • • Catholic Syrian Bank • • Development Credit Bank • Dhanalakshmi Bank • • HDFC Bank • ICICI Bank • IndusInd Bank • ING Vysya Bank • Jammu & Kashmir Bank • • • Kotak Mahindra Bank • Laxmi Vilas Bank • Ltd • Ratnagar Bank • SBI Commercial and International Bank • Ltd • Tamil Nadu Mercantile Bank •

Scheduled Urban Co-operative Banks

List of Scheduled Urban Co-operative Bank as on 31-3-2009 as per RBI

Bank

Ahmedabad Mercantile Co-Op Bank Ltd.

Kalupur Commercial Coop.Bank Ltd.

Madhavpura Mercantile Co-Op Bank Ltd.

Mehsana Urban Co-Op Bank Ltd.

Nutan Nagarik Sahakari Bank Ltd.

Rajkot Nagrik Sahakari Bank Ltd.

Sardar Bhiladwala Pardi Peoples Coop Bank Ltd.

Surat Peoples Coop Bank Ltd. Amanath Co-operative Bank Ltd.

Andhra Pradesh Mahesh Co-Op Urban Bank Ltd.

Charminar Coop.Urban Bank Ltd.

Vasavi Coop Urban Bank LImited.

Indian Mercantile Co-op Bank Ltd.

Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd.

Abhyudaya Co-operative Bank Ltd.

Bangalore city cooperative bank.

Bassein Catholic Co-operative Bank Limited.

Bharat Co-operative Bank () Ltd.

Bharati Sahakari Bank Limited.

Bombay Mercantile Co-operative Bank Limited.

Citizen Credit Co-operative Bank Ltd.

Cosmos Co-operative Urban Bank Ltd. Dombivli Nagari Sahakari Bank Ltd.

Goa Urban Co-operative Bank Limited.

Greater Bombay Co-operative Bank Limited.

Jalgaon Janata Sahakari Bank Ltd.

Janakalyan Sahakari Bank Ltd.

Janalaxmi Co-operative Bank Ltd.

Janata Sahakari Bank Ltd.

The Karnataka State Co-Operative Apex Bank Ltd

Kalyan Janata Sahakari Bank Ltd.

Karad Urban Co-operative Bank Ltd.

Mahanagar Co-operative Bank Ltd.

Mapusa Urban Co-operative Bank of Goa Ltd.

Nagar Urban Co-operative Bank Ltd.

Nasik Merchant's Co-operative Bank Ltd. New India Co-operative Bank Ltd.

NKGSB Co-operative Bank Ltd.

Parsik Janata Sahakari Bank Ltd.

Pravara Sahakari Bank Ltd.

Punjab & Maharashtra Co-operative Bank Ltd.

Rupee Co-operative Bank Ltd.

Sangli Urban Co-operative Bank Ltd.

Saraswat Co-operative Bank Ltd.

Shamrao Vithal Co-operative Bank Ltd.

Solapur Janata Sahakari Bank Ltd.

Thane Bharat Sahakari Bank Ltd.

Thane Janata Sahakari Bank Ltd.

The Kapol Co-operative Bank Ltd.

Zoroastrian Co-operative Bank Ltd. Nagpur Nagrik Sahakari Bank Ltd.

Shikshak Sahakari Bank Ltd.

The Akola Janata Com.Co-operative Bank Ltd.

The Akola Urban Co-operative Bank Ltd.

The Khamgaon Urban Co-operative Bank Ltd.

Cuttack Gramya Bank.

Indian Banks Abroad

List of subsidiaries of Indian Banks abroad as on November 30, 2007

[2]

Name of the Bank

SBI (Canada) Ltd.

SBI (California) Ltd.

SBI Finance Inc.

SBI International (Mauritius) Bank of Baroda Uganda) Ltd.

Bank of Baroda(Kenya) Ltd.

Bank of Baroda (U.K.) Nominee Ltd.

BOB (Hong Kong)Ltd.

Bank of India Finance(Kenya) Ltd.

IOB Properties Pte Ltd.

Bank of Baroda(Botswana) Ltd.

Bank of Baroda(Guyana)Inc.

ICICI Bank UK Ltd

ICICI Bank Canada Ltd

Bank of Baroda (Tanzania)

ICICI Bank Eurasia LLC

PT Bank Indomonex

Indian Ocean International Bank Ltd. (IOIB) Punjab National Bank International Limited (PNBIL)

Bank of Baroda (Trinidad and Tobago) Limited

PT Bank Swadesi Tbk Nationalized Banks in India

State Bank of India

State Bank of India (SBI) is the largest bank in India.

The bank traces its ancestry back from British India, through the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the Indian Subcontinent. The Government of India nationalised the Imperial Bank of India in 1955, with the Reserve Bank of India taking a 60% stake, and renamed it the State Bank of India. In 2008, the Government took over the stake held by the Reserve Bank of India.

SBI provides a range of banking products through its vast network in India and overseas, including products aimed at NRIs. The State Bank Group, with over 16000 branches, has the largest branch network in India. With an asset base of $250 billion and $195 billion in deposits, it is a regional banking behemoth. It has a market share among Indian commercial banks of about 20% in deposits and advances, and SBI accounts for almost one-fifth of the nation’s loans.

[2]

SBI has tried to reduce its over-staffing through computerizing operations and Golden handshake schemes that led to a flight of its best and brightest managers. These managers took the retirement allowances and then went on the become senior managers at new private sector banks.

The State bank of India is 29th most reputable company in the world according to Forbes.[3]

State Bank of India is one of the Big Four Banks of India with ICICI Bank, Axis Bank and HDFC Bank.[4]

International presence

State Bank of India (SBI), Mumbai Main Branch.

The bank has 141 overseas offices spread over 32 countries as on 31st Dec 2009. It has branches of the parent in , Dhaka, Frankfurt, Hong Kong, Johannesburg, and environs, Los Angeles, Male in the Maldives, Muscat, New York, Osaka, Sydney, and Tokyo. It has offshore banking units in the Bahamas, Bahrain, and , and representative offices in Bhutan and Cape Town. SBI operates several foreign subsidiaries or affiliates. In 1990 it established an offshore bank, State Bank of India (Mauritius).

In 1982, the bank established a subsidiary, State Bank of India (California), which now has eight branches - seven branches in the state of California and one in Washington DC that it opened on 23 November 2009. The seven branches in California are located in Los Angeles, Artesia, San Jose, Canoga Park, Fresno, San Diego and Bakersfield.

The Canadian subsidiary, State Bank of India (Canada) too dates to 1982. It has seven branches, four in the greater Toronto area and three in British Columbia.

In Nigeria SBI operates as INMB Bank. This bank began in 1981 as the Indo-Nigerian Merchant Bank and received permission in 2002 to commence retail banking. It now has five branches in Nigeria.

In Nepal SBI owns 50% of Nepal SBI Bank, which has branches throughout the country. In Moscow SBI owns 60% of , with Canara Bank owning the rest. In Indonesia it owns 76% of PT Bank Indo Monex.

History

The roots of the State Bank of India rest in the first decade of 19th century, when the Bank of Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806. The Bank of Bengal and two other Presidency banks, namely, the Bank of Bombay (incorporated on 15 April 1840) and the Bank of Madras (incorporated on 1 July 1843). All three Presidency banks were incorporated as joint stock companies, and were the result of the royal charters. These three banks received the exclusive right to issue paper currency in 1861 with the Paper Currency Act, a right they retained until the formation of the Reserve Bank of India. The Presidency banks amalgamated on 27 January 1921, and the reorganized banking entity took as its name Imperial Bank of India. The Imperial Bank of India continued to remain a joint stock company.

Pursuant to the provisions of the State Bank of India Act (1955), the Reserve Bank of India, which is India's central bank, acquired a controlling interest in the Imperial Bank of India. On 30 April 1955 the Imperial Bank of India became the State Bank of India. The Govt. of India recently acquired the Reserve Bank of India's stake in SBI so as to remove any conflict of interest because the RBI is the country's banking regulatory authority.

Offices of the Bank of Bengal

In 1959 the Government passed the State Bank of India (Subsidiary Banks) Act, enabling the State Bank of India to take over eight former State-associated banks as its subsidiaries. On Sept 13, 2008, , one of its Associate Banks, merged with State Bank of India.

SBI has acquired local banks in rescues. For instance, in 1985, it acquired Bank of Cochin in Kerala, which had 120 branches. SBI was the acquirer as its affiliate, State Bank of Travancore, already had an extensive network in Kerala.

Associate banks

There are six associate banks that fall under SBI, and together these six banks constitute the State Bank Group. All use the same logo of a blue keyhole and all the associates use the "State Bank of" name followed by the regional headquarters' name. Originally, the then seven banks that became the associate banks belonged to princely states until the government nationalized them between October, 1959 and May, 1960. In tune with the first Five Year Plan, emphasizing the development of rural India, the government integrated these banks into State Bank of India to expand its rural outreach. There has been a proposal to merge all the associate banks into SBI to create a "mega bank" and streamline operations. The first step along these lines occurred on 13 August 2008 when State Bank of Saurashtra merged with State Bank of India, which reduced the number of state banks from seven to six. Furthermore on 19th June 2009 the SBI board approved the merger of its subsidiary, State Bank of Indore, with itself. SBI holds 98.3% in the bank, and the balance 1.77% is owned by individuals, who held the shares prior to its takeover by the government. The acquisition of State Bank of Indore will help SBI add 470 branches to its existing network of 11,448. Also, following the acquisition, SBI’s total assets will inch very close to the Rs 10-lakh crore mark. Total assets of SBI and the State Bank of Indore stood at Rs 998,119 crore as on March 2009.

The Subsidiaries of SBI till date

• State Bank of Indore • State Bank of Bikaner & Jaipur • State Bank of Hyderabad • State Bank of Mysore • State Bank of Patiala • State Bank of Travancore Bank of India

Bank of India (BoI), established on 7 September 1906 is a bank with headquarters in Mumbai. Government-owned since nationalization in 1969, It is one of India's leading banks, with about 3140 branches including 27 branches outside India. BoI is a founder member of SWIFT (Society for Worldwide Inter Bank Financial Telecommunications) in India which facilitates provision of cost- effective financial processing and communication services. The Bank completed its first one hundred years of operations on 7 September 2006.

History

Previous banks that used the name Bank of India

At least three banks having the name Bank of India had preceded the setting up of the present Bank of India.

1. A person named Ramakishen Dutt set up the first Bank of India in Calcutta (now ) in 1828, but nothing more is known about this bank. 2. The second Bank of India was incorporated in London in the year 1836 as an Anglo-Indian bank. 3. The third bank named Bank of India was registered in Bombay(now Mumbai) in the year 1864. The current bank

The earlier holders of the Bank of India name had failed and were no longer in existence by the time a diverse group of Hindus, Muslims, Parsis, and Jews helped establish the present Bank of India in 1906. It was the first bank in India promoted by Indian interests to serve all the communities of India. At the time, banks in India were either owned by Europeans and served mainly the interests of the European merchant houses, or by different communities and served the banking needs of their own community.

The promoters incorporated the Bank of India on 7 September 1906 under Act VI of 1882 with an authorized capital of Rs. 1 crore divided into 100,000 shares each of Rs. 100. The promoters placed 55,000 shares privately, and issued 45,000 to the public by way of IPO on 3 October 1906; the bank commenced operations on 1 November 1906.

The lead promoter of the Bank of India was Sir Sassoon J. David (1849-1926). He was a member of the community of Baghdadi Jews, which was notable for its history of social service and included the Sassoons. He was a prudent banker, and remained the Chief Executive of the bank from its founding in 1906 until his death in 1926. Indian Bank

Indian Bank, established in 1907, is a major Indian Commercial Bank headquartered in (Madras), India. It has 22,000 employees, 1,657 branches and is one of the big public sector banks of India. It has overseas branches in Colombo, , Singapore, and 229 correspondent banks in 69 countries. The Government of India nationalized the bank, along with 13 other major commercial banks, on 19 July 1969.

Indian Overseas Bank

Indian Overseas Bank (IOB; established 1937) is a major bank based in Chennai (Madras), with 1950 domestic branches and six branches overseas. Indian Overseas Bank has an ISO certified inhouse Information Technology department, which has developed the software that 900 branches use to provide online banking to customers; the bank has a target to expand online banking to 1200 branches by the end of financial year 2007-08. IOB also has a network of about 600 ATMs all over India and IOB's International Card is accepted at all ATMs belonging to the Cash Tree and NFS networks. IOB offers internet Banking (E-See Banking) and is one of the banks that the Govt. of India has approved for online payment of taxes. Oriental Bank of Commerce

Oriental Bank of Commerce, established on 19 February, 1943, in Lahore (then a city of British India, and currently in Pakistan), is one of the public sector banks in India.Oriental Bank of Commerce made a modest beginning under its Founding Father, Late Rai Bahadur Lala Sohan Lal, the first Chairman of the Bank.Within four years of coming into existence, the Bank had to face the holocaust of partition. Branches in the newly formed Pakistan had to be closed down and the Registered Office had to be shifted from Lahore to Amritsar. Late lala Karam Chand Thapar, the then Chairman of the Bank, in a unique gesture honoured the commitments made to the depositors from Pakistan and paid every rupee to its departing customers. The foundation of customer service thus laid has ever since remained Oriental Bank's prime philosophy and has been nurtured well as a legacy by all its successors, year after year. The Bank has witnessed many ups and downs since its establishment. It has seen many upheavals in the 66 years of its existence and on every trying situation; it has emerged successful. The period of 1970-76 is said to be the most challenging phase in the history of the Bank. At one time profit plummeted to Rs.175, that prompted the owner of the bank, the Thapar House, to sell / close the bank. Then employees and leaders of the Bank came forward to rescue the Bank. The owners were moved and had to change their decision of selling the bank and in turn they decided to improve the position of the bank with the active cooperation and support of all the employees. Their efforts bore fruits and performance of the bank improved significantly. This was the turning point in the history of the bank. The bank was nationalized on 15th April, 1980. At that time total working of the bank was Rs.483 crores having 19th position among the 20 nationalised banks. Within a decade the bank turned into one of the most efficient and best performing banks of India. The bank has progressed on several fronts, such as crossing the Business Mix mark of Rs.1.50 lacs crores, achievement of 100% CBS, reorienting of lending strategy through Large & Mid Corporates and establishment of new wings viz., Rural Development and Retail & Priority Sector. The Bank has to its utmost credit lowest staff cost with highest productivity in the Indian banking industry.

Banks enjoys good reputation among customers due to its prompt and customer friendly services in comparison to other nationalised banks.

The Bank has launched yet another people's participation in the planning process at grass root level essentially to tackle the maladies of poverty. The Grameen Projects venture aims to alleviate poverty identify the reasons responsible for the failure or success.

OBC is already implementing a GRAMEEN PROJECT in Dehradun District (UP) and Hanumangarh District (Raiasthan). Formulated on the pattern of the Bangladesh Grameen Bank, the Scheme has a unique feature of disbursing small loans ranging from Rs. 75 (US $2) onwards. The beneficiaries of the Grameen Project are mostly women.The Bank is engaged in providing training to rural folk in using locally available raw material to produce pickles, jams etc. This has provided self-employment and augmented income levels thus reforming lives of rural folk and encouraging cottage industries in rural areas.

OBC launched yet another unique scheme christened 'The Comprehensive Village Development Programme' on the auspicious day of Baisakhi, the 13th of April 1997 at three villages in Punjab namely Rurki Kalan (Distt. Sangrur), Raje Majra (Distt. Ropar) and Khaira Majha (Distt. Jaladhar) and two villages in Haryana, namely Khunga (Distt. Jind) and Narwal (Distt. Kaithal). The pilot launch was a great success. Emboldened by the success, Bank extended the programme to more villages. At present, it covers 15 villages; 10 in Punjab, 4 in Haryana and 1 in Rajasthan. The programme focuses on providing a comprehensive and integrated package providing rural finance to the villagers with Village Development as its focus, thus contributing towards infrastructural development and agumentation of income for each farmer of the village. The Bank has implemented 14 point action plan for strengthening of credit delivery to women and has designated 5 branches as specialized branches for women entrepreneurs. Punjab & Sind Bank

Punjab & Sind Bank is a major bank in Northern India. Of its almost 900 branches and offices spread throughout India, almost 400 are in Punjab state, though the bank's corporate headquarters is in New .

History

In 1908, leading figures such as Bhai Vir Singh, Sir Sunder Singh Majitha and Sardar Tarlochan Singh founded Punjab & Sind Bank to help the weaker section of the society in their economic endeavours to raise their standard of life.

Punjab and Sind bank was the one of the few banks in northern India who has honored the obligations of the migrating people from Pakistan. In spite of the fact that all its major branches were left in Pakistan and only a few branches were in India after partition.

In 1980 Punjab & Sind Bank was among six banks that the Government of India nationalized in the second wave of nationalizations. (The first wave had been in 1969 when the government nationalized the top 14 banks.)

At some point in the 1970s Punjab & Sind Bank established a branch in London. In 1991 Bank of Baroda acquired Punjab & Sind Bank's London branch. Punjab National Bank

Punjab National Bank (PNB), was registered on May 19, 1894 under the Indian Companies Act with its office in Anarkali Bazaar Lahore. The Bank is the second largest government-owned commercial bank in India with about 4,904 branches across 764 cities. It serves over 37 million customers. The bank has been ranked 248th biggest bank in the world by Bankers Almanac, London. The bank's total assets for financial year 2007 were about US$60 billion. PNB has a banking subsidiary in the UK, as well as branches in Hong Kong, Dubai and Kabul, and representative offices in Almaty, Dubai, Oslo, and .

Syndicate Bank

Syndicate Bank, established in 1925 in (D.K)Now divided as Udupi (in Karnataka, India) by Upendra Ananth Pai, Vaman Srinivas Kudva and Dr. T. M. A. Pai, is one of the oldest and major commercial banks of India. At the time of its establishment, the bank was known as Canara Industrial and Banking Syndicate Limited. The bank, along with 13 major commercial banks of India, was nationalized on 19 July 1969, by the Government of India.

The business started with a capital of Rs. 8000. The first branch of the bank started its operations in the year 1928 at Brahmavar in Dakshin Kannada District. By 1937, it had secured its membership as a clearing house at Mumbai. The primary objective of the business was to extend the financial assistance to local weavers. Initially, the bank collected as low as two annas from the door steps of the depositors daily through its agents. This type of system wherein the agents of the bank come doorsteps to collect deposit is still prevailing in India and is referred to as the Pigmy Deposit Scheme.

Mergers

As time progressed, twenty banks merged with the Canara Industrial and Banking Syndicate Limited including the Maharastra Apex Bank Limited and Southern India Apex Bank Limited. The name of the bank was changed to Syndicate Bank Limited in the year 1964 and the head office of the bank was shifted to Manipal. The bank expanded its operations not only on the domestic front but also overseas. It has a branch in London and the bank manages National Exchange Co. in Doha and Musandam Exchange Co. in Muscat. By 1978, it opened its 1000th branch at Hauz Khas, Delhi. Currently it has over 2125 branches out of which 1523 are offering corebanking-e-banking services under anywhere-anytime-anyhow banking. UCO Bank

Uco Bank, formerly United Commercial Bank, established in 1943 in Kolkata, is one of the oldest and major commercial bank of India. Ghanshyam Das Birla, an eminent Indian industrialist, during the Quit India movement of 1942, had conceived the idea of organizing a commercial bank with Indian capital and management, and the United Commercial Bank Limited was incorporated to give shape to that idea. The bank, along with 13 other major commercial banks of India, was nationalized on 19th July, 1969, by the Government of India. Its name was changed to UCO Bank, in 1985, by an act of Indian Parliament. Currently (2005), the bank has 2000 Service Units spread all over India, with two overseas branches in Singapore and Hong Kong.

Union Bank of India

Union Bank of India (UBI) is one of India's largest state-owned banks (the government owns 55.43% of its share capital), is listed on the Forbes 2000. It has assets of USD 13.45 billion and all the bank's branches have been networked with its 1135 ATMs. Its online Telebanking facility are available to all its Core Banking Customers - individual as well as corporate. It has representative offices in Abu Dhabi, United Arab Emirates, and Shanghai, Peoples Republic of China, and a branch in Hong Kong.

Because of its acronym UBI, the public sometimes confuses it with United Bank of India. History

• 1919 UBI was registered on November 11, 1919 as a limited company in Mumbai. It was inaugurated by Mahatma Gandhi. • 1947 UBI had only 4 branches - 3 in Mumbai and 1 in Saurashtra, all concentrated in key trade centres. • 1975 The Government nationalized UBI. At the time of its nationalization, UBI had 240 branches in 28 states.

After nationalization, UBI merged in Belgaum Bank, a private sector bank established in 1930.

• 1985 UBI merged in Miraj State Bank, established in 1929. • 1999 UBI acquired Sikkim Bank in a rescue at the request of the Reserve Bank of India after the discovery of extensive irregularities at the non-scheduled bank. Sikkim Bank had eight branches located in the North-east, which was attractive to UBI. • 2007 UBI opened representative offices in Abu Dhabi, United Arab Emirates, and Shanghai, Peoples Republic of China. • 2008 UBI opened a branch in Hong Kong, its first branch outside India. • Dec 2009 UBI opened a representative office in Sydney United Bank of India

United Bank of India, is government-owned and one of India's major commercial banks. Presently the bank has a three-tier organisational setup consisting of its Head office in Kolkata, 28 Regional offices and 1453 branches spread all over India. However, its major presence is in eastern India. Due to a common acronym (UBI), which it shares with Union Bank of India, which also has an all-India presence, the public sometimes confuses the two banks.

On March 30, 2009, the Indian government decided to approve the restructuring United Bank of India.[[1]] The cabinet has approved the government's proposal to investing 2.50 billion rupees in shares by March 31, and another 5.50 billion in the next fiscal year in Tier-I capital instruments. The move is part of the Indian government's program to improve the capital base of the state-owned banks. Allahabad Bank

Allahabad Bank,(Hindi: इलाहाबाद बैक, Bengali: এলাহাবাদ বযাংক) which began operations in 1865, now has its head-quarters in Kolkata. Currently the bank has 2260 branches [1] across the country. The Chairman and Managing Director of the bank is K R Kamath. The bank's internet banking is maintained by EBankWorks Team of TCS.

History

• On April 24, 1865, a group of Europeans founded the bank at Allahabad, making it the oldest Joint Stock bank in India. • In 1920, P&O Bank bought Allahabad Bank. • In 1923 the bank moved its headquarters to Calcutta. • In 1927, Chartered Bank of India, Australia and China acquired and amalgamated P&O Bank. However, Chartered Bank continued to operate Allahabad Bank as a separate entity. • On July 19, 1969, the Government of India nationalized Allahabad Bank, together with 13 other banks. • In October, 1989 Allahabad Bank acquired . • In October, 2002, the bank came out with Initial Public Offer (IPO), which reduced the Government's shareholding to 71%. • A second public offering in April, 2005, further reduced the Government shareholding to 55%. • In June, 2006, the bank opened a representative office at Shenzen, China, its first office outside India. • In February, 2007, Allahabad Bank opened its first overseas branch, in Hong Kong.

Andhra Bank

Andhra Bank (Hindi: , Telugu: ) was registered आंधा बैक ఆంధర బయంక on 20 November 1923 and commenced business on 28 November 1923 with a paid up capital of Rs 1.00 lakh and an authorised capital of Rs 10.00 lakhs. The Bank crossed many milestones[clarification needed] and the Bank's Total Business as on 30.06.2008 stood at Rs.83,256 Crores with a Clientele base over 1.74 Crores.[citation needed] The Bank is rendering services through 2139 Business Delivery Channels consisting of 1371 branches, 66 Extension Counters, 38 Satellite Offices and 664 ATMs spread over 21 States and 2 Union Territories as at the end of June, 2008. All Branches are 100% computerized, 1186 units viz., 1101 Branches, 68 Extension Counters, 15 Service Centres networked under Cluster Banking solution and providing "Any Branch Banking(ABB)". Real Time Gross Settlement (RTGS) Facility and National Electronic Fund Transfer (NEFT) facility has been introduced in 723 Branches. To provide value-added services[clarification needed] to Customers, the Bank has set up its own 664 ATMs as on 30.06.2008. Of which 03[clarification needed] Mobile ATMs and two with Biometric access. Besides, ATM sharing arrangements with several Banks including SBI group, IDBI Bank, UTI Bank, HDFC Bank, Indian Bank and others under National Financial Network Switch covering 24856 ATMs. Bank is migrating to "Centralized Core Banking Solution".[clarification needed] 118 Branches have already migrated to CBS. It is proposed to cover 550 branches by September 2009. This will benefit the customers, who will have access to banking and anytime, anywhere through multiple delivery channels.[clarification needed] Andhra Bank is a pioneer in introducing Credit Cards in the country in 1981 .

[citation needed]

Our Bank introduced Internet Banking Facility (AB INFI-net) to all customers of cluster linked branches.[clarification needed] Rail Ticket Booking Facility is made available to all debit card holders through IRCTC Website through a separate gateway. Corporate Website is available in English, Hindi and Telugu Languages communicating Bank's image and information. Bank has been given 'BEST BANK AWARD' a banking technology award by IDRBT, Hyderabad for extensive use of IT in Semi Urban and Rural Areas on 02.09.2006.[citation needed] IBA Jointly with TFCI has conferred the Joint Runner-up Award to the Bank in the Bet Payments initiative in recognition of outstanding achievement of the Bank in promoting ATM Channel. Bank successfully conducted " Bancon 2006", a two day event at Hyderabad, deliberating on Inclusive Growth - A New Challenge. Kiddy Bank Scheme, with insurance benefits, was relaunched to inculcate savings habit among the children. Bank has mobilized nearly 90000 new accounts during 2007-08

As a part of "Financial Inclusion", Bank adopted two districts, namely, Srikakulam in Andhra Pradesh and Ganjam in Orissa and achieved 100% coverage. Bank has introduced Smart Card Scheme Pilot project in Warangal District and the same will be extended to other Lead Districts in due course. Bank has opened 2.11 lakh accounts under "No-frill accounts" category till 30.06.2008.

Andhra Bank, along with A P State Government, NABARD, Canara Bank, Indian Bank, IOB and SBH sponsored the Andhra Pradesh Banker's Institute of Entrepreneurship Development, which will offer training to unemployed youth for improving their skills in Andhra Pradesh.

Bank adopted Gundugolanu village, West Godavari District, Andhra Pradesh - birth place of Dr.Bhogaraju Pattabhi Sitaramayya for all- round development. A comprehensive budget with an outlay of Rs.5.50 Crore is finalized for improving health, sanitation, education and social service facilities in the village.

Bank has been ranked No.1 in terms of number of Life Insurance Policies mobilized amongst all the Agency Banks dealing with "Life Insurance Corporation of India". Bank also has tie-up with United India Insurance Company Limited under Bancassurance(Non-Life).[

Bank entered MoU with Bank of Baroda and Legal & General Group of UK to form a joint venture life insurance company. The shareholders' agreement has already been signed and necessary formalities are being completed for setting up of the company. The JV

Bank feels United States would be an ideal location as Andhra Bank has been a household name among many NRIs there.A foothold in New Jersey is strategic for the 84 year old bank as it has a large number of non resident Indians from Andhra Pradesh.

Bank of Baroda

Bank of Baroda (BSE: 532134) (BoB) (Hindi: बैक ऑफ बडौदा) is the third largest Public Sector bank in India, after State Bank of India and Punjab National Bank. BoB has total assets in excess of Rs. 2.27 lakh crores, or Rs. 2,274 billion, a network of over 3000 branches and offices, and about 1100+ ATMs. It offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries and affiliates in the areas of investment banking, credit cards and asset management.

Maharajah of Baroda Sir Sayajirao Gaekwad III founded the bank on July 20, 1908 in the princely state of Baroda, in Gujarat. The bank, along with 13 other major commercial banks of India, was nationalised on 19 July 1969, by the Government of India.

Bank of Baroda has received permission or in principle approval from host country regulators to open new offices in Trinidad and Tobago and Ghana, where it is seeking to establish joint ventures or subsidiaries. The bank has received Reserve Bank of India approval to open offices in the Maldives, and New Zealand. It is seeking approval for operations in Bahrain, South Africa, Kuwait, Mozambique, and Qatar and is establishing offices in Canada, New Zealand, Sri Lanka, Bahrain, Saudi Arabia, and Russia. It also has plans to extend its existing operations in the United Kingdom, the United Arab Emirates, and Botswana.

Bank of Maharashtra

Bank of Maharashtra (Hindi: बैक ऑफ महाराषट, Marathi: बँक ऑफ महाराषट) is the premier bank of Maharashtra, operating in the country of India.

Registered on 16th Sept 1935 with an authorized capital of Rs 10.00 lakh and commenced business on 8th Feb 1936.

Known as a common man's bank since inception, its initial help to small units has given birth to many of today's industrial houses. After nationalization in 1969, the bank expanded rapidly. It now has 1375 branches (as of 31 March 2008) all over India. The Bank has the largest network of branches by any Public sector bank in the state of Maharashtra. Canara Bank

Canara Bank (Hindi: केनरा बैक) is a major commercial bank. It was established in India in 1906, which makes it among the older Indian banks. As on 2009 November, the bank had a network of 2861 branches, spread across India and other countries. Its head office is located in , India. The bank also has international presence in several centers, including London, Hong Kong, Moscow, Shanghai, Doha, and Dubai. In terms of business it is one of the largest nationalized commercial banks in India, with a total business of about Rs.2 trillion.

Central Bank of India

Central Bank of India, (Marathi:सेटल बाक ऑफ इिडयां ) a government- owned bank, is one of the oldest and largest commercial banks in India based in Mumbai [1] . The bank currently has 3,168 branches and 270 extension counters across 27 Indian states.

Mr S Sridhar [Ex CMD ][2] has been appointed as the Chairman and Managing Director of state-run Central Bank of India as on 2 March 2009. The post had been lying vacant and the appointment was cleared by the government yesterday, the Bank said in a statement. To improve the Bank's capital adequacy ratio and enable it to support the credit requirements of the productive sectors of the economy, the Centre has recently decided to infuse Rs 1,400 crore in the Bank. Under the proposed capital infusion plan, Central Bank of India will get Rs 700 crore by this month-end, while the balance amount will be made available to the Bank in next fiscal.

Central bank of India is one of 18 Public Sector banks in India to get recapitalisation[3] finance from the government over the next 24 months. The infusion of fund will improve the financial health of the banks as their capital adequacy ratio (CAR) will be raised more than desired level of 12 percent. The increase in CAR of the banks will also enable them to lend more money. The CAR of Central Bank of India was less than 12 percent as on June 30 2006.

The wholly-owned public sector bank, based in Mumbai, will convert an amount of Rs. 800 crore out of its Rs. 1,124.14-crore total equity capital into perpetual non-cumulative preference shares.The preference shares would carry an annual floating coupon rate of eight per cent, which would be benchmarked to 100 basis points above the repo rate. It will shore up the balance-sheet of the bank and enable it to raise capital from the markets.

According to an official statement, the equity capital restructuring would lead to an improvement in the bank's credit rating as also facilitate the adoption of Basel II norms.

For financial year 2008-2009, Central Bank of India's Q3 standalone net profit went up at Rs 353.26 crore from Rs 201.01 crore (YoY). The bank's standalone net interest income, NII was up at Rs 671.94 crore versus Rs 544.85 crore (YoY).[4] At a time when the global banking industry is feeling the pinch of the global credit crunch, Central Bank of India is planning to expand its foreign presence. The public-sector lender has approached the Reserve Bank of India (RBI) for permission to open representative offices in five locations - Singapore, Dubai, Doha, London and Hong Kong. This is the first time the bank is venturing an independent overseas foray after the Sethia scam in the 1970s forced the bank to close down its London office. RBI had then asked the other two banks, who had operations in London, to close down.[5]

Central Bank of India partnered with TCS[ Tata Consultancy Services ] for its Core Banking Solution.[6] The solution set to be implemented will include B@NCS from Sydney-based Financial Network Solutions (FNS), Exim Bills Trade Finance software from China Systems and eTreasury from TCS. With 703 banks in the core banking system (CBS), it was planned that by the end of March 2008 a total of 1,000 branches would be brought under the CBS.

Corporation Bank

Corporation Bank, founded in 1906 in Udupi, Karnataka state, India, is one of the Indian banks in Public Sector Undertaking. The bank was founded with an initial capital of Rs. 5000 (USD 100), and first day’s canvassed resources of less than one USD 1, has currently (31 March 2004) 12,724 full time employees, and operates from several branches in India.

The Bank is a Public Sector Unit with 57.17% of Share Capital held by the Government of India. The Bank came out with its Initial Public Offer (IPO) in October 1997 and 37.87% of Share Capital is presently held by the Public and Financial Institutions. The Bank’s Net Worth stood at Rs.3,054.92 crores as on 31 March 2005.

The bank has the distinction of the first Indian bank to publish its financial results (1998-99) conforming to US GAAP. Dena Bank

Dena Bank (Hindi: देना बैक) (founded 26 May, 1938) is one of the earliest banks in India headquartered in Mumbai [1] .

[History

• Dena Bank was founded by the family of Devkaran Nanjee under the name Devkaran Nanjee Banking Company Ltd. • It found its new name, Dena Bank Ltd. when it was incorporated as a Public Company in Dec 1939. • It is one of the most prestigious banks of India having a good market share. • Dena Bank was nationalised (and therefore dropped the 'Ltd.' from its name) in 1969 along with 13 other banks in India. • It is one of the earliest Banks in India. Vijaya Bank

Vijaya Bank, a medium sized bank with presence across India was founded on 23 October 1931 [1]by the late Shri A.B.Shetty and other enterprising farmers in Mangalore, Karnataka in India.. The objective of the founders was essentially to promote banking habits, thrift and entrepreneurship among the farming community of Dakshina Kannada district in Karnataka State. The bank became a scheduled bank in 1958.Vijaya Bank steadily grew into a large All India bank, with nine smaller banks merging with it during the 1963-68. The credit for this merger as well as growth goes to late Shri M.Sunder Ram Shetty, who was then the Chief Executive of the bank. The bank was nationalised on 15 April 1980. The importance of Nationalized banking

THE HINDU PHOTO ARCHIVES

Prime Minister Indira Gandhi addressing members of a taxi drivers' union in Delhi who visited her to express their support for the nationalisation of 14 banks, in 1969.

IN a reversal of its recently held position, the Congress party has declared that publicly owned banks are one of India’s strengths and that the nationalisation of banks was one of the party’s important achievements. This has, as expected, upset those who have supported the party’s two-decade long flirtation with financial liberalisation, which included an as yet unfinished drive to privatise public sector banks. The declaration was first made by Congress president Sonia Gandhi at the Hindustan Times Leadership Summit. She argued that while the ongoing “economic upheaval” could “grievously affect the most vulnerable sections of our society”, her party had partially insulated India’s poor from becoming “victims of the unchecked greed of bankers and businessmen”. Elaborating, she said: “Let me take you back to Indira Gandhi’s bank nationalisation of 40 years ago. Every passing day bears out the wisdom of that decision. Public sector financial institutions have given our economy the stability and resilience we are now witnessing in the face of the economic slowdown.”

Coming from the Congress party chief at election time, this could be dismissed as mere rhetoric that is unlikely to influence policy. After all, the United Progressive Alliance chairperson had noted in the same speech that, the response to the economic slowdown resulting from the crisis should not be a return to the era of controls. But the cynics were surprised when just days after Sonia Gandhi made her remarks, Finance Minister P. Chidambaram took the cue from his leader and extolled the virtues of a nationalised banking sector. Speaking at a function organised as part of the M. Ct. M. Chidambaram Chettyar centenary celebrations, he emphasised that India’s public sector banks were strong pillars in the world’s banking industry.

This was because, unlike the chief executives of private banks in the United States, public sector bank managers did not violate regulations in search of profits. For a Minister who has been pushing for the dilution of banking regulations, the privatisation of public banks, and the relaxation of the cap on voting rights of shareholders in banks, this is indeed a reversal of position. Three factors may have contributed to this change of opinion. First, the evidence that the managers of private banks pursuing profits had dropped all diligence and made decisions that have threatened and are still threatening the viability of leading banks in the developed capitalist countries. These include banks that the advocates of financial liberalisation and privatisation upheld as models of modern banking.

Second, the recognition that the only way in which the losses made by these banks could be socialised and their viability ensured was for the government to invest in their shares so as to recapitalise them. Across the world, the response to the financial crisis has shifted out of mere measures to inject liquidity into the system to backdoor nationalisation of these banks so as to save them from bankruptcy and to ensure that they keep lending.

Finally, the evidence that on an average, the public sector banks in India have weathered the financial storm much better than the private banks, including some that had been celebrated as the post- liberalisation icons of innovative banking.However, if the argument stops here, the explicit or implicit defence of nationalisation and support for public banking can only be partial and circumstantial. What needs recognition is a conceptual case for regulated, public banking that emerges from the current and previous financial crises. It is now widely recognised that the current crisis can be traced to forces unleashed by the transformation of U.S. banking in the 1970s, when it moved away from the “lend and hold” model in which the interest margin – or the difference between interest paid on deposits and the interest charged on loans – determined the profits of banks.

With interest rates being controlled or regulated, this margin was small and implied that the profitability of banking was low and below that of the rest of the financial sector and even that of many non- financial industries. In fact, during the inflationary 1970s, profitability sank even further because savers moved out of bank deposits, returns on which were regulated, to other kinds of financial instruments.

On the other hand, the banks that pool these deposits provide medium or long-term advances to borrowers who are risky targets, creating loan assets that are relatively illiquid. Given the risk carried by these intermediaries, which are crucial to the real economy, they had to be protected and the savings of small savers and households secured through regulation, including regulation of interest rates. A consequence was that banking was an island of low profits, resulting in a conflict between this profit scenario and private ownership.

In the process, banks migrated to a world where expected and realised returns were much higher than earlier, resolving the conflict between private ownership and lower relative profitability.

Unfortunately, that transformation also generated all the elements that underlie the current and previous crises. The number of bank failures in the U.S. increased after the 1980s. From 1955 to 1981, U.S. banks averaged 5.3 failures a year, excluding banks that were protected by official open-bank assistance. On the other hand from 1982 to 1990, the banks averaged 131.4 failures a year, or 25 times as many as from 1955 to 1981. During the four years ending 1990, banks averaged 187.3 failures a year. The most spectacular set of failures was that associated with the “savings and loan crisis”, which was precipitated by financial behaviour induced by liberalisation. Thus, there is a fundamental contradiction in private enterprise capitalism. If the banking sector is regulated, it cannot deliver the profits that are considered adequate by private investors, who are given returns elsewhere in the system. On the other hand, if regulations are relaxed to facilitate the pursuit of profits, it will result in bank fragility and “the poor become the victims of the unchecked greed of bankers and businessmen”, as Sonia Gandhi noted. The only solution, therefore, is the nationalisation of banking, or the core of the financial system. Advantages of Nationalization of Banks in India

Nationalisation, which delivers a resilient banking system, yields many favourable outcomes:

• It ensures the information flow and access needed to pre-empt fragility by substantially reducing any differences in the objectives and concerns of bank managers, on the one hand, and bank supervisors and regulators, on the other. This is a much better insurance against bank failure than efforts to circumscribe their areas of operation, which can be circumvented.

• It subordinates the profit motive to social objectives and allows the system to exploit the potential for cross subsidisation. As a result, credit can be directed, despite higher costs, to targeted sectors and disadvantaged sections of society at lower interest rates. This permits the fashioning of a system of inclusive finance.

• It gives the state influence over the process of financial intermediation and allows the government to use the banking industry as a lever to advance its development efforts. In particular, it allows for the mobilisation of technical and scientific talent to deliver both credit and technical support to agriculture and the small-scale industrial sector.

This multifaceted role for state-controlled banking allows the government to combine policies aimed at preventing fragility and avoiding failure with policies aimed at achieving broad-based and inclusive development. Directed credit at differential interest rates can lead to economic activity in chosen sectors and regions and among chosen segments of the population. It amounts to building a financial structure in anticipation of real-sector activities, particularly in underdeveloped and underbanked regions of a country.

The importance of public ownership in realising these objectives cannot be overstressed, since it requires subordinating the profit motive to larger social goals, which would not be acceptable to a privately owned and controlled banking system. Conclusion

It hardly bears emphasising that the achievements of India’s banks after nationalisation have been remarkable. There was a substantial increase in the geographical spread and functional reach of banking, with nearly 62,000 bank branches in the country as of March 1991, of which over 35,000 (or over 58 per cent) were in the rural areas. There was a sharp increase in the share of rural areas in aggregate deposits and credit. In fact, a major achievement of the banking industry in the 1970s and the 1980s was a decisive shift in credit provision in favour of the agricultural sector. From an extremely low level at the time of bank nationalisation, agriculture’s share of credit rose to a peak of about 18 per cent by the end of the 1980s.

In sum, public ownership of banks, besides preventing the system from periodic crises caused by the behaviour encouraged by the pursuit of private profit, delivers many growth and welfare benefits. It is, therefore, gratifying that the combination of a financial crisis and the pressures of electioneering have forced the government to retract on its mindless advocacy of financial liberalisation and recognise the benefits of public ownership. Whether this will influence policy is, however, yet to be seen. ***********************