Bank failures in India

By Pradeep Yuvaraj | May 14, 2011

A recent press report said that an average 40 banks failed in India during each year between 1947 and 1955. Reports said that in the year 1951, there were 566 private commercial banks in India with 4,151 branches. Bank failures in India were out of control before Independence in the absence of comprehensive banking legislation and structured supervision mechanism for the banks.

Reports added saying that during 1913 to 1936, 481 banks had failed in the country and the situation did not improve in the post-Independence period even after the spread of the Banking Regulation Act in 1949. Almost 106 banks were liquidated during the period 1954 to 1959 among which 73 banks went into voluntary liquidation and 33 into compulsory liquidation. To protect public savings, it was considered better to wind up insolvent banks or amalgamate them with stronger banks.

But it must be noted that access to credit in the form of Agricultural loan, jewel loans, personal loan etc could be affected for retail customers as many of them depend on these commercial banks for credit.

In 1960, after RBI received formal powers to amalgamate banks, 217 banks were amalgamated. Further, some of the bigger private banks were nationalised in two tranches in 1969 and 1980 to promote inclusive banking. Thus, the number of private banks has significantly reduced over time. Currently there are 14 old private banks operating in the country.

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About Pradeep Yuvaraj

Pradeep Yuvaraj is a Co-Founder and Director at Finerva Financial Solutions Private Limited, a financial education company focused on personal finance education. He has penned over 250 articles relating to Personal Finance and clocked over 500 hours of educating individuals on managing personal finance. He is a serial entrepreneur and has been associated with 7 Start-ups. His entrepreneurial experience spans industries as varied as Education, Gas Engineering, Automobile Design, Software development and more recently a Pure play presentation design company. Prior to turning entrepreneur in 2005, he has worked for 3 of the top ten companies of the world - Shell, ExxonMobil and Total SA. This experience included handling Branch Operations, Channel Sales and Business Development across 5 states over a period of 8 years. He holds an MBA from Symbiosis and an Electronics Engineering Degree from the University of Pune.

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