History of Banking — Set 6

Correct Answer: D. Reserve Bank of India

• **Reserve Bank of India** = is called the 'Mother of all Banks' because, as India's central bank, it issues currency, sets monetary policy, regulates all commercial banks, and acts as the lender of last resort — providing emergency liquidity to banks in distress. • **RBI was established on April 1, 1935**, under the RBI Act, 1934; it was nationalised in 1949 and performs the functions of a bankers' bank, government's bank, and currency authority all in one. • 💡 State Bank of India is wrong — SBI is the largest commercial bank but is supervised by RBI, not its superior; Central Bank of India is wrong — despite its name, it is just a public sector commercial bank founded in 1911, not the country's central bank; Punjab National Bank is wrong — PNB (1894) is a public sector commercial bank under RBI's regulatory purview, not the apex institution.

Correct Answer: B. Oudh Commercial Bank

• **Oudh Commercial Bank** = established in 1881 at Faizabad (now Ayodhya), Uttar Pradesh; it was the first bank with limited liability to be managed entirely by Indians — a significant milestone in the Swadeshi spirit of financial independence. • **Oudh Commercial Bank** eventually failed and closed, but it paved the way for fully Indian-run banking institutions; it preceded Punjab National Bank (1894), which is often cited as the first major Indian-owned scheduled bank that survived. • 💡 Punjab National Bank is wrong — PNB (1894) came 13 years after Oudh Commercial Bank and is the more famous successor in the indigenous banking tradition; Allahabad Bank is wrong — it was founded in 1865 by Europeans, not Indians; Canara Bank is wrong — it was founded in 1906 in Mangalore by A. Subba Rao Pai and is not connected to Faizabad or the 1881 milestone.

Correct Answer: D. 1894

• **1894** = Punjab National Bank was founded on May 19, 1894, in Lahore; it was the first bank established with purely Indian capital and under entirely Indian management — a landmark of Swadeshi banking. • **Lala Lajpat Rai** was among its founding members; after Partition in 1947 PNB moved its headquarters to New Delhi; in 1993, New Bank of India was merged into PNB — the first-ever merger between two nationalised banks in India. • 💡 1911 is wrong — 1911 is the year Central Bank of India was founded in Mumbai by Sorabji Pochkhanawala; 1901 is wrong — no major Indian bank was launched in that year; 1881 is wrong — 1881 is the founding year of Oudh Commercial Bank in Faizabad, which was the first Indian-managed bank but a different institution from PNB.

Correct Answer: C. State Bank of India

• **State Bank of India** = is the largest public sector bank in India by total assets, deposits, branches, and employees; it has over 22,000 branches and 65,000 ATMs across the country and is also listed on Fortune 500. • **SBI** was formed on July 1, 1955, by nationalising Imperial Bank of India; five associate banks (State Bank of Mysore, Travancore, Bikaner & Jaipur, Hyderabad, and Patiala) along with Bharatiya Mahila Bank were merged into SBI in April 2017, further strengthening its dominance. • 💡 Punjab National Bank is wrong — PNB is the second-largest public sector bank after its 2020 merger with Oriental Bank of Commerce and United Bank of India, but still trails SBI significantly; Bank of Baroda is wrong — it is a large PSB but ranked well below SBI in assets; Canara Bank is wrong — Canara Bank merged with Syndicate Bank in 2020 but remains smaller than SBI.

Correct Answer: B. State Bank of India

• **State Bank of India** = Imperial Bank of India is the direct predecessor of SBI; on July 1, 1955, the Imperial Bank was nationalised under the State Bank of India Act, 1955, and renamed State Bank of India. • **Imperial Bank** was itself formed in 1921 by merging the three Presidency Banks (Bank of Bengal, Bank of Bombay, Bank of Madras); so the lineage is: three Presidency Banks → Imperial Bank (1921) → State Bank of India (1955). • 💡 Central Bank of India is wrong — it was founded independently in 1911 by Sorabji Pochkhanawala and has no lineage connection to Imperial Bank; Reserve Bank of India is wrong — RBI was established in 1935 under a separate act and was never formed from the Presidency Banks; Bank of India is wrong — it was founded separately in 1906 in Mumbai and is a distinct public sector bank with no connection to Imperial Bank's lineage.

Correct Answer: A. Bank of India

• **Bank of India** = opened the first overseas branch of any Indian bank in London in 1946, marking the beginning of Indian banking's global outreach; Bank of India was founded in 1906 by a group of eminent Mumbai businessmen. • **Bank of India** has since expanded to over 50 offices across 20+ countries; it was nationalised in 1969 as one of the 14 commercial banks and is headquartered in Mumbai. • 💡 Punjab National Bank is wrong — PNB's first overseas office came much later; it had no London branch in 1946; State Bank of India is wrong — SBI did not even exist in 1946 (it was formed in 1955); Bank of Baroda is wrong — while Bank of Baroda has a strong international presence today, it was not the first to open an overseas branch in 1946.

Correct Answer: D. To promote social welfare and rural credit

• **To promote social welfare and rural credit** = before 1969, private banks focused almost exclusively on large industries and urban businesses; nationalisation aimed to redirect credit towards agriculture, small industries, and the rural poor — fulfilling the directive principles of the Indian Constitution. • **After nationalisation**, priority sector lending norms were introduced (40% of ANBC for domestic banks, 18% to agriculture); the Lead Bank Scheme (1969, Gadgil Committee) assigned one bank per district to drive rural credit expansion. • 💡 To reduce government control is wrong — nationalisation was the exact opposite; it massively increased government control over banking; To compete with foreign banks is wrong — foreign bank competition was not the stated rationale; in fact, liberalisation to allow foreign banks came later in 1991; To increase profits is wrong — profit maximisation was precisely the criticism of private banks; nationalisation was intended to replace profit motive with social objectives.

Correct Answer: B. HSBC

• **HSBC** = Hongkong and Shanghai Banking Corporation introduced the first ATM in India in 1987 in Mumbai, allowing customers to withdraw cash outside banking hours — a transformative moment for Indian retail banking. • **HSBC's ATM** predated Indian public sector banks' adoption of the technology by several years; SBI introduced its first ATM only in 1994; the National Financial Switch (NFS), enabling interoperable ATMs across banks, was launched by IDRBT in 2004. • 💡 State Bank of India is wrong — SBI installed its first ATM in 1994, seven years after HSBC; ICICI Bank is wrong — ICICI Bank was established only in 1994, the same year SBI got its first ATM, so it could not have introduced ATMs in 1987; Standard Chartered is wrong — while a foreign bank operating in India, it did not introduce the first ATM; HSBC holds that distinction.

Correct Answer: D. Reserve Bank of India Act 1934

• **Reserve Bank of India Act 1934** = Section 22 of the RBI Act, 1934 gives the Reserve Bank the sole right to issue banknotes in India; this is called the 'Issue Department' function, kept separate from the 'Banking Department'. • **Coins and ₹1 note** are issued by the Government of India (Ministry of Finance) under the Coinage Act — making them the only exception; all other currency notes (₹2 and above) are issued exclusively by RBI. • 💡 Companies Act 1956 is wrong — it governs the incorporation and functioning of companies, with no provisions on currency issuance; Banking Regulation Act 1949 is wrong — it regulates the operations of commercial banks (capital adequacy, licencing, audits) but does not deal with currency issuance; Coinage Act 1906 is wrong — it governs coins, not banknotes; and coins are issued by the government, not RBI.

Correct Answer: A. Calcutta

• **Calcutta** = the first Presidency Bank, Bank of Bengal, was established in Calcutta on June 2, 1806, with initial capital of ₹50 lakh; it was promoted by the British East India Company and the colonial government. • **The other two Presidency Banks** followed: Bank of Bombay (1840) and Bank of Madras (1843); all three were merged in 1921 to form Imperial Bank of India, which later became State Bank of India in 1955. • 💡 Madras is wrong — Bank of Madras was the third Presidency Bank (1843), not the first; Surat is wrong — Surat was an important trading centre but no Presidency Bank was established there; Bombay is wrong — Bank of Bombay (1840) was the second Presidency Bank, established in Bombay, not the first one.