27 January 1921: The Imperial Bank of India came into existence

The Imperial Bank of India, which became the State Bank of India after independence, came into existence on January 27, 1921.

The history of modern banking in India can be traced back to 1806 when the Bank of Calcutta was established. In 1809 it was re-named Bank of Bengal. Then in the 1840s the Bank of Bombay and Bank of Madras came up.

While these three banks’ evolution was influenced by ideas generated by the great economic churning taking place in Europe in the 19th century, local needs and conditions in India played an important role too. The establishment of the Bank of Bengal saw the start of limited liability, joint-stock banking. The Bank of Bengal was allowed to issue notes that could be used for paying public revenues in certain areas. According to the banks’ royal charters, 80% of share capital was privately subscribed and the remaining state-owned.

The three Presidency Banks were at the helm of Indian banking till their amalgamation in 1921 into the Imperial Bank of India, which combined the role of a commercial bank and a central bank. However, with the establishment of the Reserve Bank o India in 1935, the Imperial Bank ceased to have a central banking function. It now became a purely commercial bank and certain business restrictions on it were removed.

After independence the economic model of five-year plans necessitated a re-organisation of banking. On July 1, 1955, as per the State Bank of India Act 1955, the State Bank of India (SBI) was constituted and it took over the business and undertaking of the Imperial Bank. In the same year the State Bank of India (Subsidiary Bank) Act was passed, with the State Bank of Hyderabad becoming the first subsidiary of the SBI.

In the next five years, the State Bank of Bikaner, State Bank of Jaipur, State Bank of Travancore, State Bank of Mysore, State Bank of Indore, State Bank of Saurashtra and State Bank of Patiala became subsidiaries of the SBI.

In a paper titled ‘Indian Financial System & Indian Banking Sector: A Descriptive Research Study’, Dr. Mamta Ratti, professor and principal, Swami Devi Dyal Institute of Management Studies, Panchkula, writes: “[A] significant development, since the mid-fifties, was related to the widening of range of banking operations, which includes, term lending and underwriting of securities, as forms of finance. The directing of bank funds to the requirements of the five-year plans was reflected in the flow of bank credit to the priority sector. But the quantitative magnitude to these new areas remained insignificant to materially alter the basic structure of India banking.”

Some of the developments in the 1960s included the amalgamation of the Bhor State Bank Ltd with the SBI and the taking over of the Unit Bank Ltd. Chennai by the SBI. In the 1970s the SBI introduced the perennial pension plan and an integrated rural development programme. A cash certificate scheme, wherein deposit certificates were issued for a fixed period on payment of issue price, was introduced in 1980.

In the next few years the SBI established the non-resident investment cell and launched a self-employment scheme for educated unemployed youth. In 1988 a pilot project called ‘Stree Shakti’ to encourage women entrepreneurs was started by the bank. The India Magnum Fund was launched the following year.

During the early 1990s, with the Indian economy opening up, the SBI had to re-engineer itself to adjust to the needs of an expanding economy. By the end of 2013, the SBI had over 14,800 branches in India and 2.3 lakh employees. In the financial year 2012-13, its revenue was Rs 200,560 crore, with domestic operations contributing to 95% of the revenue. In 2013 Arundhati Bhattacharya became the first woman chairman of the SBI.

The country’s largest banking and financial services firm by assets, the SBI’s importance goes far beyond the banking sector. Examining the challenges the SBI faces, Srikanth Srinivas wrote in Business World in July 2013: “Though SBI is not really huge by global standards…it is gargantuan compared with any Indian bank. It is the equivalent of the next three largest domestic banks — ICICI Bank, Punjab National Bank and Bank of Baroda — rolled into one and accounts for one-fifth of India’s banking business. And it has been doubling in size every five years. In almost every business it is in, SBI is by far the biggest player.”

Also on this day:

1886 — Radha Binod Pal, Indian jurist, was born

1969 — Bobby Deol, Hindi film actor, was born

1969 — Vikram Bhatt, Hindi filmmaker, was born

1986 — Nikhil Banerjee, Indian classical musician, passed away 

2009 — R. Venkataraman, eighth President of India, passed away 

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