In the year 1786, the General Bank of India was set up, followed by Bank of Hindustan and Bengal Bank. The East India Company formed Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent banks and called them as Presidency Banks. These three banks were unified in 1920 and Imperial Bank of India was formed. In 1865 Allahabad Bank was established, In 1894 Punjab National Bank ltd was formed in 1894.From the year 1906 to 1913 Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank and Bank of Mysore were established. The RBI was founded in 1935.
During this period the development of banks was sluggish and banks suffered regular failures. To bring about greater stability in the bank’s the Government of India passed The Banking Companies Act 1949, which was later modified as Banking Regulation Act 1949.The act of 1965 entrusted the Reserve Bank Of India with authority to control the functioning of other nationalized banks heralding a new beginning in Indian banking. In 1955 the Imperial Bank of India was nationalized. The State Bank of India was established to act as the controlling authority for RBI and to take care of banking transactions of the Union and State governments across the country. In 1960 seven banks were nationalized and assigned as subsidiary of SBI.
In 1969 under directions from the then Prime Minister Mrs. Indira Gandhi 14 major commercial banks in the country was nationalized. In 1980 seven more banks were nationalized, resulting in 80% of the banking sector coming under the control of the government. The national banks played a vital role in both rural and urban economies and in making banking services accessible to the masses.
Reforms were introduced in the banking sector to strengthen Indian banks and make them internationally competitive and for banks to play a vital role in the economic development of the country. The Banking Industry was opened up for private participation and the entry of new private banks and foreign banks increased competition. The efficiency of the banking sector improved as suggested by indicators such as gradual reduction in cost of intermediation and decline in nonperforming loans. Efficiency in the banking sector was driven by improved technology and competition.
The financial industry has undergone rapid transformation post liberalization. Reforms have overall led to greater accountability and transparency in the financial markets, resulting in greater inflow of investments from FII's into the capital market. Today the Indian capital market is considered as a mature market and among the fastest growing markets in the world.