The bank was the central bank of the erstwhile Nizam state under the name Hyderabad State Bank. It was established on 8 August 1941 under the Hyderabad State Bank Act, during the reign of the last Nizam of Hyderabad, Mir Osman Ali Khan.
The bank managed the Osmania Sicca, the currency of Hyderabad state, which covered the present-day Telangana, some districts later known as Hyderabad-Karnataka of Karnataka and Marathwada of Maharashtra. (At the time a number of the princely states had their own currencies.) The bank also carried out commercial banking.
The bank opened its first branch at Gunfoundry, Hyderabad on 5 April 1942. The Imperial Bank of India, which had established a branch in Hyderabad in 1868 and another in Secunderabad in 1906, provided officers and clerical staff in the initial stages, and later provided training for new recruits.
The first secretary of Hyderabad State Bank was Muhammad Saleh Akbar Hydari, son of Sir Akbar Hydari. The gunfoundry building was designed by Mohammad Fayazuddin, an alumnus of Architectural Association School of Architecture, London.
