Of the many institutions and civil services inherited by modern India from the British, the most important in relation to banking was the Reserve Bank of India (RBI), established in 1935 and now located in the city of Mumbai. Mumbai is the nation’s foremost commercial capital, with not only the RBI being headquartered there, but also the Bombay Stock Exchange (BSE), the National Stock Exchange (NSE), and many other major financial institutions. Looking specifically at RBI, it serves as the nation’s central bank and therefore its prime monetary authority. It is considered manager of India’s exchange control, as well as its issuer of currency. Today, the RBI is headed by a governor (appointed by the central government of India and overseen by a central board).

Historically, contemporary banking in India has its roots in the nationalization of 14 banks by Prime Minister Indira Gandhi in 1969. PM Gandhi also stipulated, at the time, that banks would be mandated to provide 40% of their net credit to high priority business sectors, such as small-scale industry, retail trade, small businesses, and agriculture. In the nearly four decades since this privatization, the number of bank branches in India has increased from 10,120 in 1969 to nearly 100,000 in 2008. This time period also saw total bank deposits increasing by 32.6 times, compared to its increase of only 7% from the period of 1951 to 1971.

Since the liberalizations and related banking changes instituted in 1969, the Indian government has approved a great number of additional banking reforms. Although many of these were related to nationalized banks (such as the encouragement of mergers and the reduction of government interference), others changes have been primarily aimed at the opening up of private banks and insurance organizations to private and foreign investors. Looking specifically at the past several years, banking activities of note have included a strong growth in consumer credit and a real estate boom, both of which fueled concerns over inflation in 2006 and 2007. In responses, several central banks announced interest rates hikes—which, in turn, slowed credit growth and eased these inflation concerns.

The money market in Indian is classified into distinct categories: the organized sector (composed of private, public, and foreign-owned commercial banks and cooperative banks, together known as “scheduled banks”); and the unorganized sector (made up of individual and family-owned indigenous bankers and money lenders). Currently, it is still unorganized sector and microcredit activities that are preferred in rural and sub-urban areas. But, again, major city centers in India have long been dominated by large domestic financial institutions and the extensive presence of brick-and-mortar branches of many other international banks of importance. 

India’s largest and most advanced stock market is the National Stock Exchange (NSE), incorporated in 1992. The NSE, which s the 3rd largest stock exchange in the world, runs alongside the BSE Sensex (aka, the BSE Sensitive Index), a value-weighted index comprised of 30 companies (with 1979 serving as its base year). The BSE Sensex is widely regarded as the most popular and precise barometer of the Indian stock markets. Combined, the BSE and NSE account for roughly 83% of all stock market trade activity in the nation, with the remainder of the activity taking place on any of India’s other 23 smaller stock exchanges.