Rural strategy for new bank licensee

Abstract

Before 20th century there was no formalized banking structure in place and usury, or lending at high rates were widely prevalent. But with the rise in trade and related activities during colonial era the need arose for consolidation of services. Thus, came into existence Union Bank of Calcutta (1829), it was established as a partnership between various trading communities. However, it soon got defunct due to some fraud by employees. Gradually, many more banks came into existence with a healthy participation from international banks. As the time elapsed it was observed that most banks were catering only to particular segments, or ethnic communities. With the advent of nationalism and drive from Swadeshi movement (1906-11), local businessman and political figures established banks for mass segment of the society. The period of World Wars however gave a blow to the sector as many banks failed due to unprecedented levels of war spending. Eventually, India gained independence and adopted mixed economy which necessitated more intervention by state in banking and financial sector. With this Reserve Bank of India, apex institution in banking sector was established and later nationalized in 1949. Under the Banking Regulation Act, RBI was empowered “to regulate, control, and inspect the banks of India” along with the mandate to be the sole authority in granting licenses for opening of bank. But, existing banks in the private sector still had operational freedom. In order to align the sector along the socialist mindset, the incumbent government came out with Bank Nationalization Act, in 1969 and brought all major banks under its purview. The government promulgated another act in 1980 and became ultimate authority over 91% of India’s banking business. LPG (Liberalization, Privatization & Globalization) policy in 1991 however allowed entry of foreign players in the sector with RBI granting them licenses.