Credit in India has a long history, reaching back to ancient times long before modern money systems were established. Formal credit systems developed later, and over the decades the Indian credit sector has transformed significantly. On the occasion of the Indian Republic’s 71st anniversary, we review this evolution and how lending has changed from early India to the present day.
Early India
References in early texts suggest that moneylending existed during the Vedic period. More structured practices appear in Kautilya’s writings from the Mauryan era, which describe loan deeds and instruments resembling modern bills of exchange. Merchants issued letters of credit to each other, allowing trade to flourish across regions. Royal treasuries used payment orders known as barattes, and Hundis served multiple functions as negotiable instruments for payment and credit. These systems provided a foundation for commercial lending and financial transactions long before modern banking emerged.
Pre-Independence
The arrival of the British brought formal banking institutions to India. The Union Bank of Calcutta was among the earliest banks established under colonial rule, followed by others such as Allahabad Bank and Punjab National Bank. In the early 20th century, Indian entrepreneurs founded community-focused banks as part of the Swadeshi movement. Between 1906 and 1911 several prominent Indian banks, including Bank of India, South Indian Bank and Bank of Baroda, were established to serve local needs and to promote indigenous enterprise. Private banks also emerged in regions such as Dakshina Kannada and Udupi.
A key institutional development was the founding of the Reserve Bank of India in 1935, which began to regulate banking operations nationally. This marked the start of a more formal regulatory framework that would later expand after independence.
Post-Independence
Before independence, most banks were privately owned. The partition in 1947 disrupted the economy, particularly in Punjab and West Bengal, prompting the government to take a more active role in economic management. The Banking Regulation Act of 1949 significantly strengthened the Reserve Bank of India’s authority to regulate and supervise banks. As the state took a larger role in the financial sector, many banks were nationalized and operations became more rule-driven. During the early decades after independence, the process of obtaining credit could be slow and difficult for many citizens.
Modern Lending Systems
The economic liberalization of the 1990s ushered in another major shift. As India opened up to global markets, private banks such as HDFC, ICICI and IndusInd emerged, bringing competition and new services. Banking became faster and more customer-centric, but getting credit still often involved significant paperwork, multiple bank visits and, in many cases, substantial collateral.
Today, technology is driving a new transformation in lending. Digital innovations — from mobile apps to advanced data analytics — are simplifying credit access and accelerating approvals. While technologies like blockchain and artificial intelligence are starting to influence financial services, the most visible change for consumers has been the rise of instant loan apps that enable borrowing from home. These services have arrived alongside rapid growth in consumer credit: for example, consumer durable loans showed strong increases in recent years.
Consumer demand for credit is evident across multiple indicators. Debit card transactions doubled between FY13 and FY18, while credit card transactions grew approximately fivefold, reflecting broader adoption of credit instruments. Digital lending platforms have capitalized on this shift by streamlining application and approval processes. Several apps now offer short-term personal loans, travel loans, shopping loans and education loans with minimal friction and faster disbursals, often approved within hours.
Instant loan providers have reduced the previous need for repeated bank visits, complex paperwork and lengthy waits. Many platforms offer small personal loans with quick approval and disbursal, catering to immediate expenses and short-term needs. These services have attracted millions of users who value convenience and speed.
The trajectory of the Indian credit sector shows a clear progression: from informal, trust-based arrangements in ancient times to formal, regulated banking after colonial influence and independence, and now to agile, technology-driven lending models. Each phase has addressed different needs and constraints, and the current digital wave is expanding financial access while challenging regulators and providers to ensure responsible lending and consumer protection.