From ancient usury to the cradle of modern Indian banking

Wealth & Business · Published 18 October 2026 Swipe more like this →

In short: India's financial history reveals a complex journey from ancient moral debates over usury to the rise of modern institutions. From the 18th-century presidency banks to the 20th-century Swadeshi movement, the sector transformed through periods of extreme volatility, state nationalization, and the creation of a massive, nationwide network.

The roots of Indian finance are deeply embedded in ancient texts like the Vedas, Sutras, and Jatakas. While these early works often condemned usury—with the word 'kusidin' used to describe an usurer—the practice eventually became more socially acceptable by the 2nd century CE. Even the Manusmriti, while acknowledging usury as a means of livelihood, imposed specific moral and caste-based ceilings on lending rates. By the Mauryan period (321–185 BCE), sophisticated financial instruments like 'adesha'—essentially a modern bill of exchange—were already in use, alongside letters of credit in large trading towns.

Modern banking began in the mid-18th century, marked by the establishment of the Bank of Hindustan in 1770 and the General Bank of India in 1786. However, the landscape was dominated by the 'presidency banks' (Bank of Bengal, Bank of Bombay, and Bank of Madras), which acted as quasi-central banks until the Reserve Bank of India (RBI) was established in 1935. A pivotal shift occurred during the Swadeshi movement (1906–1911), which inspired local businessmen to found community-focused banks. This era birthed several enduring institutions and established the Dakshina Kannada district as the "Cradle of Indian Banking."

The 20th century brought significant volatility and state intervention. Between 1913 and 1918, at least 94 banks failed due to the turbulence of World War I. Following independence in 1947, the government moved away from a laissez-faire model, enacting the Banking Regulation Act of 1949 to empower the RBI. This led to a massive wave of nationalization: 14 major private banks were taken over in 1969, followed by 6 more in 1980. Today, these nationalized banks dominate the economy due to their massive scale and reach, while the State Bank of India (SBI) remains the oldest and largest bank in existence, having evolved from the Bank of Calcutta in 1806.

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