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The institute dates back to the days of the British Raj in India. The British established this hospital on 17 May 1918 with the name of 'Ranchi European Lunatic Asylum'. It had then a capacity of 174 patients (92 males and 82 females). It catered to the needs of the European mental patients only and it was under the direct control and management of Government of Bihar (then, Jharkhand was a part of Bihar).
In 1922, it was put under the control of a Board of Trustees with various participating state governments represented in the Board and in the very same year its name was changed to 'European Mental Hospital'. The year 1922 is also notable for the fact that the Institute was affiliated to the University of London for the Diploma in Psychological Medicine examination. It was a unique phenomenon since the postgraduate training in Psychiatry was nonexistent in India in those days.