The history of banking dates back to the thirteenth century when the first bill of exchange was used as money in medieval trade. There was no such word as ‘banking’ before 1640, although the practice of safe-keeping and savings flourished in the temple of Babylon as early as 2000 B.C. Chanakya in his Arthashastra written in about 300 B.C. mentioned about the existence of powerful guilds of merchant bankers who received deposits, advanced loans and issued hundis (letters of transfer). The Jain scriptures mention the names of two bankers who built the famous Dilwara Temples of Mount Abu during 1197 and 1247 A.D.
The first bank called the ‘Bank of Venice’ was established in Venice, Itlay in 1157 to finance the monarch in his wars. The bankers of Lombardy were famous in England. But modern banking began with the English goldsmith only after 1640. The first bank in India was the ‘Bank of Hindustan’ started in 1770 by Alexander & Co. an English agency house in Calcutta which failed in 1782 with the closure of the agency house. But the first bank in the modern sense was established in the Bengal Presidency as the Bank of Bengal in 1806.
History apart, it was the ‘merchant banker’ who first evolved the system of banking by trading in commodities than money. Their trading activities required the remittances of money from one place to another. For this, they issued ‘hundis’ to remit funds. In India, such merchant bankers were known as ‘Seths’.