02 banking industry

8/8/2019 02 Banking Industry

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Banking industry


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Theearly history of banking Goldsmiths

Goldsmith notes becamepayable to bearer on demand hence

became a bank note

Part of the deposits loaned out at interest for fixed period of time

Soon, this moved to making his notespayable at any time, as long

as his credit remained good

The king borrowed heavily and repudiated his loan

Curr ent account invented money withdrawable withoutnotice


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History of banking

Bank of England (1694)

Raising finances for Anglo-French War, public distrust

of goldsmiths BofE notes however other banks could also issue

notes

However, most banks found notes business

unprofitable; deposit banking grew in importance Earlier withdrawable by letters, and later by cheques

Printed cheques introduced between 1749 and 1759


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Banking in India Pillar of Indian society since Vedic times

Transition frommoney lending to banking guided by lawsof Manu

Detailed references in Arthashastra and Buddhist literature

Status

While land revenue was collected in kind, services werepaid incash

Hence,place to keepcash safely was a necessity, particularly inunsettled times

Mor e trusted than State officials respected forcommercialmorality


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Banking in India Transfer of funds Hundi

Part of oureconomicheritage from the time of the

Mahabharata Inland bills ofexchange

Hence, therehas to be a very well developed

knowledge of bankers across thecountry withhigh

moral values and creditworthiness


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Joint stock banks

Began with Western style business houses the

Agency Houses

Early banks wereparts of larger businesses

Commercial disaster of 1829-32

Many agency houses failed, taking their banks with

them

Established the necessity ofhaving banks have to be

completely disassociated from other businesses

Legalised in 1913 and continued thereafter


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Growth of banking Presidency Banks established in Calcutta, Bombay

and Madras (1809 to 1843) joint stock banks

with Government shareholding Power of note issue given in 1823 banknote notpopular, hence replaced by Governmentpapermoney in 1862

1839 allowed to open branches and deal ininland exchange

1860 principle of limited liability applied to jointstock banks


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Crisis Crisis of 1862 65

Many businessmen started banks as speculative

businesses Many banks failed, including Bank of Bombay

Currency trouble goldprice of silver fell, affecting

price of Indian rupee which was on the silver standard

Aff ected growth of joint stock of banks: only majorbanks started was PNB in 1895, & Allahabad Bank

between 1865 and 1870


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Swadeshi and banking Swadeshi movement gave a huge impetus to

growth of Indian banking

Bank of India, Central Bank of India, Indian

Bank, Bank of Baroda

Many banks created many died during the

crash of 1913-1917


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The origins of State Bank Presidency Banks amalgamated into the Imperial Bank of

India, 1921 limited liability bank

Not empowered to issue notes hence no control overcurrency in thecountry

However

Could hold Government balances

Managepublic debt and clearing houses

Became State Bank of India in 1955

Great Depression affected growth of banking institutions

in India till the founding of the Reserve Bank


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Reserve Bank of India Created in 1935; nationalised by Act of 1948

To regulate the issue of banknotes sole rights to issue

To maintain reserves with a view to securing monetarystability and

To operate thecredit and currency system of the

country to its advantage.

Government banker, agent and adviser. Bankers' Bank and Lender of the Last Resort

Custodian of Foreign Reserves


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What is a Central bank?


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Functions of a Central Bank Keep the financial structure on an even keel

= stability

Control currency and credit

Stimulate banking enterprise in thecountry


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What is the structure of bankingin India?

02 banking industry

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