History of Banking — Set 1

Correct Answer: C. Bank of Hindustan

• **Bank of Hindustan** = first bank established in India (1770, Calcutta), set up by the agency house of Alexander & Company under British colonial rule. • **Closed in 1832** — it operated for ~62 years but was a private, non-government-backed institution; after multiple financial stresses it wound up operations around 1832. • The three Presidency Banks — Bank of Bengal (1806), Bank of Bombay (1840), Bank of Madras (1843) — came after Bank of Hindustan and were government-backed, not private. • 💡 General Bank of India is wrong — it was established in 1786, 16 years after Bank of Hindustan, and also failed; Oudh Commercial Bank is wrong — it was established in 1881 as the first Indian-owned bank, not the first bank in India; Bank of Bengal is wrong — it is a Presidency Bank established in 1806, 36 years after Bank of Hindustan.

Correct Answer: C. 1806

• **1806** = Bank of Bengal was established in 1806 (originally as Bank of Calcutta) by the British East India Company — making it the first of the three Presidency Banks. • **Renamed in 1809** — it received a royal charter and was officially renamed Bank of Bengal in 1809; it was government-backed unlike the earlier Bank of Hindustan. • The other two Presidency Banks came later: Bank of Bombay in 1840 and Bank of Madras in 1843; all three merged in 1921 to form the Imperial Bank of India. • 💡 1809 is wrong — that is the year Bank of Calcutta was renamed Bank of Bengal, not its founding year; 1840 is wrong — that is the year Bank of Bombay was established; 1843 is wrong — that is the year Bank of Madras was established.

Correct Answer: B. Bank of Bengal, Bank of Bombay, and Bank of Madras

• **Bank of Bengal, Bank of Bombay, and Bank of Madras** = the three British-era Presidency Banks merged on January 27, 1921 to form the Imperial Bank of India. • **Semi-central bank role** — Imperial Bank acted as India's quasi-central bank (government banker, currency chest keeper) until the RBI was established in 1935, after which it became a purely commercial bank. • Imperial Bank was later nationalised and became the State Bank of India on July 1, 1955. • 💡 Central Bank of India, Union Bank, Bank of India, Bank of Baroda, Punjab National Bank, Allahabad Bank, Canara Bank and Syndicate Bank are all separate entities — none of them were Presidency Banks and none were part of the 1921 merger.

Correct Answer: D. Oudh Commercial Bank

• **Oudh Commercial Bank** = established in 1881 at Faizabad (now Ayodhya, UP) — the first bank in India with limited liability fully managed by an Indian board of directors. • **Failed in 1958** — despite operating for ~77 years, it remained a small, branch-less bank and eventually collapsed in 1958 due to financial mismanagement. • It is distinct from Punjab National Bank (1894), which is described as the first Swadeshi bank with Indian capital but was founded 13 years after Oudh Commercial Bank. • 💡 Allahabad Bank is wrong — established in 1865 by Europeans, not by an Indian board; Central Bank of India is wrong — founded in 1911 by Sir Sorabji Pochkhanawala, three decades after Oudh Commercial Bank; Punjab National Bank is wrong — founded in 1894, 13 years after Oudh Commercial Bank.

Correct Answer: B. Lala Lajpat Rai

• **Lala Lajpat Rai** = key founder of Punjab National Bank, which was incorporated on May 19, 1894 in Lahore — the first bank purely managed with Indian capital and no European directors. • **Swadeshi significance** — PNB is called the first Swadeshi bank because its founding was driven by the spirit of Indian nationalism and economic self-reliance, predating the formal Swadeshi Movement of 1905. • PNB is different from Oudh Commercial Bank (1881, first Indian-managed limited liability bank) — PNB was larger, had branches, and thrived as a fully functional commercial bank. • 💡 Pherozeshah Mehta is wrong — he was a Congress leader and lawyer, not PNB's founder; Dadabhai Naoroji is wrong — he was the Grand Old Man of India, an economist-politician, not connected to PNB; Raja Ram Mohan Roy is wrong — he died in 1833, over 60 years before PNB was founded.

Correct Answer: A. Central Bank of India

• **Central Bank of India** = founded on December 21, 1911 by Sir Sorabji Pochkhanawala — the first commercial bank wholly owned and managed by Indians from its very inception. • **'Swadeshi bank' title** — Central Bank of India claimed to be the first truly Swadeshi bank; Pherozeshah Mehta served as its first chairman, giving it strong nationalist credentials. • It should not be confused with the Reserve Bank of India (central bank of the country) — Central Bank of India is a public sector commercial bank, now headquartered in Mumbai. • 💡 Canara Bank is wrong — founded in 1906 by Ammembal Subba Rao Pai in Mangalore, 5 years before Central Bank; Bank of Baroda is wrong — founded in 1908 by Maharaja Sayajirao Gaekwad III; Union Bank of India is wrong — established in 1919 by the Indian National Congress as a Swadeshi institution, 8 years after Central Bank.

Correct Answer: D. Hilton Young Commission

• **Hilton Young Commission** = officially the Royal Commission on Indian Currency and Finance (1926), chaired by Sir Edward Hilton Young — it recommended establishing a central bank for India to manage currency and credit. • **RBI Act 1934 → operational April 1, 1935** — the Commission's 1926 report led to the Reserve Bank of India Act, 1934; RBI began operations on April 1, 1935, initially headquartered in Calcutta (moved to Mumbai in 1937). • The Commission also recommended separating the functions of currency management from the government's direct control — a foundational principle of central banking. • 💡 Chamberlain Commission (1913-14) is wrong — it recommended a central gold reserve but not a separate central bank; Fowler Commission (1898) is wrong — it dealt with currency reform (gold exchange standard), not central banking; Simon Commission (1927) is wrong — it was a constitutional reform commission, not related to banking or currency.

Correct Answer: A. 1949

• **1949** = the Reserve Bank of India was nationalised on January 1, 1949 under the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 — transferring all privately held shares to the Government of India. • **Was private before 1949** — when RBI was established in 1935, it was a shareholders' bank with private ownership; nationalisation made it fully government-owned and directed. • The Banking Regulation Act was also passed in 1949, giving RBI regulatory authority over commercial banks — both events happening the same year strengthened state control over the entire banking system. • 💡 1935 is wrong — that is when RBI was established (April 1), not nationalised; 1947 is wrong — that is Indian Independence; RBI nationalisation happened 2 years later in 1949; 1950 is wrong — the Indian Constitution came into force in 1950, but RBI had already been nationalised in 1949.

Correct Answer: B. 1955

• **1955** = the State Bank of India was constituted on July 1, 1955 under the State Bank of India Act, 1955 — the Imperial Bank of India was nationalised and renamed SBI to expand banking to rural and semi-urban areas. • **All India Rural Credit Survey** — the transformation was recommended by the All India Rural Credit Survey Committee (Gorwala Committee), which found that cooperative credit was failing farmers and argued for a strong state-owned bank. • SBI took over the Imperial Bank's network of ~480 offices and became the country's largest bank; it later absorbed 8 associate banks between 2008–2017. • 💡 1960 is wrong — no major SBI restructuring happened that year; 1951 is wrong — the First Five-Year Plan started in 1951 but SBI was not created then; 1949 is wrong — that is the year RBI was nationalised, not when Imperial Bank became SBI.

Correct Answer: D. 14

• **14 banks** = on July 19, 1969, PM Indira Gandhi's government nationalised 14 major commercial banks that each had deposits exceeding ₹50 crore — a landmark move called 'social control of banking'. • **Banks included** — Central Bank of India, Bank of India, Punjab National Bank, Bank of Baroda, United Commercial Bank, Canara Bank, Dena Bank, United Bank of India, Syndicate Bank, Allahabad Bank, Indian Bank, Bank of Maharashtra, Indian Overseas Bank, and Union Bank of India. • The goal was to direct credit towards agriculture, small industries, and priority sectors that private banks had historically ignored. • 💡 6 is wrong — six banks were nationalised in the second phase in 1980, not in 1969; 10 is wrong — not the count for any phase of bank nationalisation in India; 20 is wrong — the total across both phases (1969+1980) is 20, but the 1969 phase alone covered only 14 banks.