CA AYUSH AGRAWAL (Kolkata-Pune-Mumbai) (26986 Points)

29 July 2010  



Origin of Banking

The first bank was probably the religious temples of the ancient world wherein gold was stored in the form of easy-to-carry compressed plates. Their owners justly felt that temples were the safest places to store their gold as they were constantly attended, well built and were sacred, thus deterring would-be thieves. There are extent records of loans from the 18th century BC in Babylon that were made by temple priests to merchants.

Ancient Greece holds further evidence of banking. Greek temples as well as private and civic entities conducted financial transactions such as loans, deposits, currency exchange, and validation of coinage. There is evidence too of credit, whereby in return for a payment from a client, a moneylender in one Greek port would write a credit note for the client who could “cash” the note in another city, saving the client the danger of carting coinage with him on his journey.

Ancient Rome perfected the administrative aspect of banking and saw greater regulation of financial institutions and financial practices. Charging interest on loans and paying interest on deposits became more highly developed and competitive.

The origin of banking in India can be traced back to almost the Vedic period. The transformation from pure money lending to proper banking appears to have taken place before the times of Manu. Manu, a great Hindu jurist, had devoted a section of his work explaining the deposits and advances and he even laid down certain rules on rates of interest.

Through out Mauryan period and later on desi bankers played some role in the economy of the country. However, it was during the Moghul period that indigenous bankers started playing a vital role in lending money and financing of the foreign trade and commerce.

Banking during british period before independence

Ü           The first joint stock bank, namely The General Bank of India was established in 1786.

Ü           Later on Bank of Hindustan and Bengal Bank came into existence. Bank of Hindustan carried on business till 1906.

Ü           East India Company established the following three banks, namely The Bank of Bengal in 1809, The Bank of Bombay in 1840, and Bank of Madras in 1843. They were collectively called Presidency Banks and were well functioning independent units.

Ü           The three banks established by the East India Company were amalgamated in 1920 and a new bank called Imperial Bank of India was established.

Ü           A number of private banks had been established by the businessmen from mid of the 19th century onwards. In the surchanged atmosphere of Swadeshi movement, a number of banks with Indian management, namely, Punjab National Bank Ltd., Bank of India Ltd., Canara Bank Ltd, Indian Bank Ltd. etc. were established.

Ü           The Reserve Bank of India was established as the Central bank of the country in 1935 under an act called Reserve bank of India Act. Later on with the passage of the Banking Regulation Act passed in 1949, RBI was brought under government control. Under this Act, RBI was conferred with supervision and control of the banks and licensing powers and the authority to conduct inspections was also given to it.

After independence

Ü           In 1955, the Imperial Bank of India was nationalised and was given the name “State Bank of India”. It was established under State Bank of India Act, 1955.

Ü           In 1960, RBI was empowered to force the compulsory merger of the weak banks with the strong ones. This led to reduction in the number of banks from 566 in 1951 to about 89 in 1969.

Ü           On July 19, 1969, 14 major banks were nationalised.

Ü           In1980, another six banks were nationalised, and thus raising the number of nationalized banks to 20.

Ü           On the suggestions of Narsimham Committee, the Banking Regulation Act was amended in 1993 and thus the gates for the new private sector banks were opened.

Normally chartered accounting firms audit trading and manufacturing firms. The work of bank branch audit is a very specialized job and comes once in a year. Number of CA firms eligible for Bank audits are limited. Auditors should update their knowledge about RBI circulars as RBI on monthly /yearly basis keep on revising its guidelines. Audit in this field should be done with extra precaution.