India has a real long history of banking. According to the Indian Central Banking Enquiry Committee (1931), money lending activity in India could be traced back to the Vedic period, i.e., 2000 to 1400 BC. The existence of professional banking in India could be traced to the 500 BC. Kautilya’s Arthashastra, dating back to 400 BC contained references to creditors, lenders and lending rates.
After the independence of the country in 1947, keeping in tune with the then economic policy, banking sector was highly regulated. In the aftermath of a balance of payment crisis situation in 1991 and with the advent of economic reforms India embarked upon financial sector liberalization in a phased manner.