History of Banking in India: Nationalisation, RBI and PYQs

The correct answer is A, 1969. On 19 July 1969 the Government of India issued an ordinance taking over the fourteen largest Indian scheduled commercial banks, those whose deposits stood at ₹50 crore or more. Indira Gandhi held the Finance portfolio along with the Prime Minister's office at the time, and the stated purpose was to direct credit to agriculture, small industry and the unbanked districts.

Option B, 1970, is the year the Banking Companies (Acquisition and Transfer of Undertakings) Act was passed to replace the ordinance after the Supreme Court struck it down, which is why the year is a favourite distractor. Option C, 1972, belongs to no step in the nationalisation story. Option D, 1950, is far too early; in that year the Reserve Bank had been in public ownership for barely a year and commercial banking was still entirely private. The second round of nationalisation, of six banks, came on 15 April 1980.

The correct answer is A, Allahabad Bank. It was founded in 1865 and is remembered as the oldest joint stock bank in India, a joint stock bank being one owned by shareholders rather than by a partnership of agency houses. The presidency banks were older but were chartered institutions of the East India Company rather than ordinary joint stock companies.

Option B, Bank of Baroda, was founded in 1908 by Maharaja Sayajirao Gaekwad III of Baroda, more than forty years later. Option C, Yes Bank, belongs to the generation of private banks licensed after the reforms of the 1990s and began business in 2004, so it cannot be the oldest anything. Option D, Punjab National Bank, was registered in 1894 and opened at Lahore; it holds a different distinction, that of the first bank floated with wholly Indian capital and Indian management, and examiners often swap the two claims in the options.

The correct answer is C, 1949. The Reserve Bank opened in 1935 as a shareholders' bank with privately held share capital. Parliament passed the Reserve Bank of India (Transfer to Public Ownership) Act in 1948, and the transfer took effect from 1 January 1949, since when the Bank has been wholly owned by the Government of India.

Option A, 1947, is the year of independence, when the Reserve Bank was still privately owned and was in fact acting as the common central bank for both India and Pakistan until mid-1948. Option B, 1948, is the year the enabling Act was passed and is the trap in this question: the Act is of 1948, the nationalisation of 1949. Option D, 1950, is the year the Constitution came into force and the Planning Commission was set up, neither of which touches the ownership of the Bank. The Banking Regulation Act also dates from 1949.

The correct answer is A, 1975. The rupee was tied to the pound sterling from colonial times and stayed pegged to it after independence. In 1975 the link was cut and the rupee was tied instead to a basket of currencies of India's major trading partners, with the Reserve Bank fixing the daily rate. The step was taken because the pound itself had become unstable after the breakdown of the fixed exchange rate system in the early 1970s.

Option B, 1947, is independence, when the sterling link was retained. Option D, 1963, belongs to no exchange rate change; the two devaluations students confuse it with are 1949 and 1966. Option C, 1982, is the year NABARD and the EXIM Bank were set up, not an exchange rate landmark. The basket peg lasted until the reforms of 1991 to 1993, when India moved to a market determined exchange rate.

The correct answer is B, the Hilton Young Commission. Formally the Royal Commission on Indian Currency and Finance, it reported in 1926 that the control of currency and of credit should not be split between the Government and the Imperial Bank but placed in one central bank. Its recommendation led to the Reserve Bank of India Act of 1934 and the Bank commenced operations on 1 April 1935.

Option A, the Narasimham Committee, comes much later: the working group on rural banks that led to Regional Rural Banks, and then the reform committees of 1991 and 1998. Option C, the Chelliah Committee, reported on reform of the tax system in the early 1990s and has nothing to do with central banking. Option D, the Sivaraman Committee, recommended the National Bank for Agriculture and Rural Development, which was set up on 12 July 1982. Examiners pair each committee with its institution, so learn them as pairs.

The correct answer is C, 1955. The All India Rural Credit Survey Committee under A. D. Gorwala reported that rural credit needed a bank with branches across the country and in state partnership. Parliament passed the State Bank of India Act, 1955, and on 1 July 1955 the Imperial Bank of India became the State Bank of India.

Option A, 1935, is the year the Reserve Bank began operations and took over from the Imperial Bank the management of government accounts and public debt, which is a related but different event. Option B, 1949, is the year the Reserve Bank passed into public ownership and the Banking Regulation Act was enacted. Option D, 1959, is the year of the State Bank of India (Subsidiary Banks) Act, under which the banks of the former princely states became subsidiaries of the State Bank; they were merged into the parent on 1 April 2017.

The correct answer is B, six. On 15 April 1980 the Government nationalised six more private banks, this time using a deposit cut-off of ₹200 crore. One of the six, New Bank of India, was later merged into Punjab National Bank in 1993, which is why the count of nationalised banks afterwards is often given as nineteen.

Option A, four, and option C, eight, match no round of nationalisation and are there to test whether the cut-off and the count have been learnt together. Option D, fourteen, is the number taken over in the first round on 19 July 1969, when the cut-off was deposits of ₹50 crore or more. The pattern to remember is simple: 1969, fourteen banks, ₹50 crore; 1980, six banks, ₹200 crore; and the State Bank of India was already in public hands from 1955, so it appears in neither list.

The correct answer is C, Punjab National Bank. It was registered in 1894 and opened at Lahore as the first bank floated entirely with Indian capital and run by Indian management, with Lala Lajpat Rai among those associated with its founding. It survived the failures of the early twentieth century and was nationalised in 1969.

Option A, Bank of Hindustan of 1770, was a European agency house venture at Calcutta and the first bank in India, a different distinction. Option B, Oudh Commercial Bank of 1881, is described as the first bank in India with limited liability under Indian management, and papers sometimes use that wording, so read the stem closely. Option D, Central Bank of India of 1911, founded by Sorabji Pochkhanawala, is remembered as the first entirely Indian-owned commercial bank. Three similar claims, three different banks.

The correct answer is C, 1982. NABARD was set up on 12 July 1982 on the recommendation of the Committee to Review the Arrangements for Institutional Credit for Agriculture and Rural Development, chaired by B. Sivaraman. It took over the agricultural credit functions of the Reserve Bank and the refinance work of the Agricultural Refinance and Development Corporation, and it is the apex body for rural credit and for supervising cooperative banks and Regional Rural Banks.

Option A, 1975, is the year the first five Regional Rural Banks opened, on 2 October. Option B, 1976, is the year of the Regional Rural Banks Act. Option D, 1990, is the year the Small Industries Development Bank of India was set up. The EXIM Bank, like NABARD, dates from 1982, so the year carries two institutions and examiners test both.

The correct answer is A, 1 April 1935. The Reserve Bank of India Act was passed in 1934 and the Bank commenced operations on 1 April 1935, taking over note issue from the Controller of Currency and the management of government accounts and public debt from the Imperial Bank of India. Its central office was at Calcutta to begin with and moved to Bombay in 1937.

Option B, 1 January 1935, and option D, 1 July 1935, are made up dates placed to catch a half remembered year. Option C, 1 April 1934, mixes the year of the Act with the day of the month on which operations began, and is the commonest wrong choice. Keep three dates apart in this story: 1926 for the Hilton Young Commission, 1934 for the Act and 1 April 1935 for the start of operations, with 1 January 1949 for nationalisation.