Total 1049 banks in India at Independence

The Banking Landscape:

At the time of India's independence in 1947, there were a total of 1049 banks:

• 97 scheduled commercial banks (including Imperial Bank of India)
• 557 non-scheduled banks
• 395 cooperative banks

However, the banking sector was still nascent, with limited reach and impact on the overall economy. These banks held only ?1261 crores in deposits and ?475 crores in loans

At the time of India's independence in 1947, the banking sector was fragmented and underdeveloped. It primarily catered to the urban elite and commercial interests, leaving a vast majority of the rural population unbanked and reliant on informal moneylenders.

Key Features of Banking in India at Independence:

1. Dominance of Private Banks: The banking sector was dominated by private banks, with limited reach and focus on commercial lending.
2. Limited Rural Penetration: Banking services were largely inaccessible to rural areas, hindering financial inclusion and agricultural development.
3. Weak Regulatory Framework: The regulatory framework was inadequate, leading to instability and frequent bank failures.
4. Lack of Specialized Institutions: There was a lack of specialized financial institutions catering to the needs of specific sectors like agriculture and small businesses.
5. Limited Role of Central Bank: The Reserve Bank of India (RBI), established in 1935, had limited control over the banking system due to the dominance of private banks.

Major Players in the Banking Sector:

• Imperial Bank of India: Formed in 1921 through the merger of three presidency banks (Bank of Bengal, Bank of Bombay, and Bank of Madras), it acted as a de facto central bank before the nationalization of RBI.
• Private Commercial Banks: Several private banks like Punjab National Bank, Bank of Baroda, and Central Bank of India played a significant role in commercial lending.
• Exchange Banks: These banks, mostly foreign-owned, focused on foreign exchange transactions and trade finance.

Non Banks (NBFC) as a concept was non-existent

Early Pioneers in NBFCs were

• Motor & General Finance Ltd: Established in 1952, this is often cited as one of the earliest examples of an NBFC in India.
• Mahindra & Mahindra Financial Services: Founded in 1957, it also stands as an early player in the NBFC landscape.

These companies primarily focused on hire-purchase and leasing services, filling a gap in the financial market at the time.

The Path to Reform:

After independence, the Indian government recognized the need to reform the banking sector to promote financial inclusion, support economic development, and ensure stability. This led to the nationalization of the Reserve Bank of India in 1949 and the enactment of the Banking Regulation Act, which empowered the RBI to regulate and supervise the banking sector.

The nationalization of major commercial banks in 1969 further strengthened the government's control over the banking sector and paved the way for expanding banking services to rural areas and priority sectors.