State Bank of Indi aponsibility of theReserv e Ba nk of Indi a, ich in 1935

formally took over thes eGovernment of IndiaATMs, with the private and foreign banks

holding 18.2% and 6.5% respectively. Bank of BengalBank of BombayBank

of Madrasree banks merged in 1925 to form theImper ia l Ba nk of In di a ich,

upon India' sAllahabad Bank American Civil War stopped the supply of

cotton toLancashiref rom theConfedera te 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 inkeeping deposits with banks. Subsequentl y, banking in India

remained the exclusive domain of Europeans for next several decades until the

beginning of the 20th century.Forei gn banks too started to arrive, particularly inCalcutta, in

the 1860s. TheComptoir e d'Escompte de Parisopened a branch in Calcutta in

1860, and another inBombayin 1862; branches inMadrasand Pondicherry, then a

French colony, followed. Calcutta was the most active trading port in India,

mainly due to the trade of theBritish Empire, and so became a banking center.Aroun d the turn of

the 20th Century, the Indian economy was passing through a relative periodof

stability. Around five decades had elapsed since theIndian Mutiny, and the social, industrialand

other infrastructur e had improved. Indians had established small banks, most of

whichserved particular ethnic and religious communities. The presidency banks

dominated banking in India but there were also some exchange banks anda number of

Indianjoint stock banks. All these banks operated in different segments of theeconomy.

The exchange banks, mostly owned by Europeans, concentrated on financing

foreigntrade. Indian joint stock banks were generally under capitalized and lacked

the experience andmaturity to compete with the presidency and exchange

banks. This segmentatio n let Lord Curzonto observe, "In respect of banking it seems we are behind

the times. We are like some old fashione d sailing ship, divided by solid wooden bulkheads

into separate and cumbersome compartment s." By the 1900s, the market expanded

with the establishmen t of banks such asPunjab National Ban k , in 1895 in Lahore

andBank of India, in 1906, inMumbaiboth of which were founded under

private ownership. Punjab National Bank is the first Swadeshi Bank

founded by theleaders like Lala Lajpat Rai, Sardar Dyal Singh Majithia. TheSwadeshi

movement in particular ins pired 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 asBank of India,Corpor ation Bank ,Indian Bank,Bank of Baroda,Cana ra

Bank andCen tral Bank of India.The fervour of Swadeshi movement lead to establishing

of many private banks inDakshina Kannada 8

andUdupi districtwhich were unified earlier and known by the name South Canara

( SouthKanar a) 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 Independen ce :

The period during theFirst World War (19141918) through the end of

theSecond World War (1939-1945), and two years thereafter until theindepend

enceof India were challenging for Indian banking. The years of the First World War were

turbulent, and it took its toll with bankssimply collapsing despite theIndian economygain

ing indirect boost due to war-related economicacti vities. At least 94 banks in India failed

between 1913 and 1918 as indicated in the followingtabl e:

YearsNumber of banksthat failedAuthoriz ed capital(Rs. Lakhs)Paid-up Capital(Rs. Lakhs) 1 9 1 3

1 2 4 5 9 4 2 1

2 7 3 1 1 4 7 0

1 9 9 5 1 6 1 1

0 1 1 1 5 5 9 6

1 2 1 1 1 9 6 5

3 3 4 9 7 7 2 1

9 8 2 9 9

1 7 0 1

Postindependen ce :
The partition of Indiain 1947 adversely impacted the

economies of Punjaband West Bengal, paralyzing banking activities for months. India'sindepe

ndencemarke d the end of a regime of theLaissezfairefor the Indian banking. TheGovernm

ent of Indiainitiated measures to play an active role in the economic life of the nation, and

the Industrial Policy Resolution adopted by thegovernme nt in 1948 envisaged amixed

economy. This resulted into greater involvement of thestate in different segments of the economy

including banking and finance. The major steps toregulate banking included:

In 1948, theReserve 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 ban

k could be opened without a license from the RBI, and no two banks could