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Institutions in IndiaJoint Stock BanksIt can be defined as any company which accepts for the purpose of lending or investment deposits of money from the public, repayable on demand or otherwise and withdrawal by cheque, draft order or otherwise The beginning of commercial banking of the joint stock variety that could be traced back to the early 18th century. The western variety of joint stock banking was brought to India by the English Agency houses of Calcutta and BombayThe first bank of a joint stock variety was Bank of Bombay, established in 1720 in Bombay. This was followed by Bank of Hindustan in Calcutta, which was established in 1770 .However, the bank was closed down in 1832. The General Bank of Bengal and Bihar, which came into existence in 1773, after a proposal by Governor (later Governor General) Warren Hastings, proved to be a short lived experimentJoint stock banksThe pre-independence period was largely characterised by the existence of private banks organised as joint stock companies. Most banks were small and had private shareholding of the closely held variety. They were largely localised and many of them failed. They came under the purview of the ReserveBank that was established as a central bank for thecountry in 1935.The first Indian owned bank was the Allahabad Bank set up in Allahabad in 1865.the second, Punjab National Bank was set up in 1895 in Lahore and the third, Bank of India was set up in 1906 in Mumbai. All these banks were founded under private ownership.The Swadeshi Movement of 1906 provided a great impetus to joint stock banks of Indian ownership and many more Indian commercial banks such as Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were established between 1906 and 1913.4JSB are classified by RBI as - scheduled banks - non-scheduled banksScheduled banks : banks which are listed in the Second Schedule of the RBI Act, 1934. They are - Commercial banks - Regional rural banks - urban cooperative banks - State cooperative banksPresidency BanksTrade was concentrated in Calcutta after the growth of East India Companys trading and administration. With this grew the requirement for modern banking services, uniform currency to finance foreign trade and remittances by British army personnel and civil servants. The first Presidency bank was the Bank of Bengal established in Calcutta on June 2, 1806 with a capital of Rs.50 lakh. The Government subscribed to 20 per cent of its share capital and shared the privilege of appointing directors with voting rights. The bank had the task of discounting the Treasury Bills to provide accommodation to the Government. The bank was given powers to issue notes in 1823. The Bank of Bombay was the second Presidency bank set up in 1840 with a capital of Rs.52 lakh the Bank of Madras the third Presidency bank established in July 1843 with a capital of Rs.30 lakh They were known as Presidency banks as they were set up in the three Presidencies that were the units of administrative jurisdiction in the country for the East India Company. The Presidency banks were governed by Royal Charters. The Presidency banks issued currency notes until the enactment of the Paper Currency Act, 1861, when this right to issue currency notes by the Presidency banks was abolished and that function was entrusted to the GovernmentThe Presidency Bank Act, which came into existence in 1876, brought the three Presidency banks under a common statute and imposed some restrictionson their business. It prohibited them from dealing with risky business of foreign bills and borrowing abroad for lending more than 6 months, among others. In terms of Act XI of 1876, the Government of India decided on strict enforcement of the charter and the periodic inspection of the books of these banks. The proprietary connection of the Government was, however, terminated, though the banks continued to hold charge of the public debt offices in the three presidency towns, and the custody of a part of the Government balances.The Act also stipulated the creation of Reserve Treasuries at Calcutta, Bombay and Madras into which sums above the specified minimum balances promised to the presidency banks, The Government could lend to the presidency banks from such Reserve Treasuries.This Act enabled the Government to enforce somestringent measures such as periodic inspection ofthe books of these banks. The major banks were organised as private shareholding companies with the majority shareholders being Europeans. By the end of December 1913, the total number of reporting commercial banks in the country reached 56 comprising 3 Presidency banks, 18 Class A banks (with capital of greater than Rs.5 lakh), 23 Class B banks (with capital of Rs.1 lakh to 5 lakh) and 12 exchange banks. Exchange banks were foreign owned banks that engaged mainly in foreign exchange business in terms of foreign bills of exchange and foreign remittances for travel and trade.Class A and B were joint stock banks. The banking sector during this period, however, was dominated by the Presidency banks as was reflected in paid-up capital and deposits

World War I and its Impact on Banking in IndiaThe World War I years (1913 to 1918) were indeed difficult years for the world economy. The alarming inflationary situation that had developed as a result of war financing and concentration on the war led to other problems like neglect of agriculture and consumers. Most activity during the war period was concentrated in urban areas. This further tilted the already adverse urban-rural balance. Rural areas lacked access to organised banking and this led to almost complete dependence of farmers on moneylenders who charged exorbitant rates of interest. During the war period, a number of banks failed. Some banks that failed had combined trading functions with banking functions. 12More importantly, several of the banks that failed had a low capital base. For instance, average capital of failed banks in 1913 was Rs.2.9 lakh as against the average capital of Rs.12 lakh for the category of Class A and B banks.The crisis had begun before the World War I, but accentuated during itMost of these banks had also maintained an unduly low proportion of cash and other liquid assets.As a result, they were not resilient enough to be able to perform under difficult times.

The presidency banks were amalgamated into a single bank, the Imperial Bank of India, in 1921. The Imperial Bank of India was further reconstituted with the merger of a number of banks belonging to old princely states such as Jaipur, Mysore, Patiala and Jodhpur. The Imperial Bank of India also functioned as a central bank prior to the establishment of the Reserve Bank in 1935. Thus, during this phase, the Imperial Bank of India performed three set of functions, viz., commercial banking, central banking and the banker to the government.By 1930, the number of commercial banks increased to 107 with the Imperial Bank of India stilldominating the Indian banking sector Besides, at end-March 1929, 158 co-operative banks also existed. The number of co-operative banks rose sharply (more than doubled) between 1922-23 to 1928-29 Although greater than commercial banks in number, the size of deposits of co-operative banks was much smaller.In 1930, the banking system, in all, comprised1258 banking institutions registered under the Indian Companies Act, 1913 Of the 1258 entities registered as banks in 1930, while some were banks in genuine terms, otherswere indigenous banks, nidhis and loan companies.Nidhis are more popular in South India and are highly localized single office institutions. They are mutual benefit societies, because their dealings are restricted only to the members; and membership is limited to individuals. The principal source of funds is the contribution from the members. The loans are given to the members at relatively reasonable rates for purposes such as house construction or repairs and are generally secured. The deposits mobilized by Nidhis are not much when compared to the organized banking sector.Indigenous bankers constitute the ancient banking system of India. They have been carrying on their age-old banking operations in different parts of the country under different names.In Chennai, these bankers are calledChettys; in Northern IndiaSahukars, Mahajans and Khatnes;in Mumbai,Shroffs and Marwaris;and in Bengal,Seths and Banias.According to theIndianCentral Banking Enquiry Committee, an indigenous banker or bank is defined as an individual or private firm which receives deposits, deals in hundies or engages itself in lending money.

The indigenous bankers can be divided into three categories:(a)those who deal only in banking business (e.g., Multani bankers);(b)those who combine banking business withtrade(e.g., Marwaris and Bengalies); and(c) those who deal mainly in trade and have limited banking business.The indigenous banker is different from the moneylender. The moneylender is not a banker; his business is only to lend money from his own funds. The indigenous banker, on the other hand, lends and accepts funds from public.The world economy was gripped by the GreatDepression during the period from 1928 to 1934. This also had an impact on the Indian banking industry with the number of banks failing rose sharply due to their loans going bad.