Review: The Presidency Banks: The Transition

Reviewed Work(s): The Evolution of the State Bank of India: Volume I: The Roots, 18061876. Part I: The Early Years, 1806-1860 by Amiya Kumar Bagchi; The Evolution of the
State Bank of India: Volume I: The Roots, 1806-1876. Part II: Diversity and Regrouping by
Amiya Kumar Bagchi
Review by: Arun Kumar Banerji
Source: Economic and Political Weekly, Vol. 23, No. 24 (Jun. 11, 1988), pp. 1215-1222
Published by: Economic and Political Weekly
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REVIEW ARTICLE

The Presidency Banks: The Transition

Arun Kumar Banerji

The Evolution of the State Bank of India: Volume I-The Roots, 1806-1876. Part I: The Early Years, 1806-1860;
pp xxii + 521 + index; Part II: Diversity and Regrouping; pp xii + 478 + bibliography and index; by Amiya
Kumar Bagchi (published on behalf of the State Bank of India by Oxford University Press, Bombay, 1987); price
Rs 300 for the two parts.
THE IDEAL, DELINEATION OF THIS HISTORY

are difficult to review-not only because they

of the State Bank of India by Amiya Kumar

Quite early in the Introduction, Bagchi
Bagchi arrived in 1987. The complete work
sets out what "ideally" a history of the three
will trace the history of the Presidency Banks
Presidency Banks should delineate-(a) the
of Bengal, Bombay and Madras-which
economic evolution of India and her commerged in 1921 to become the Imperial Bank
ponent regions as they determined the nature
of India, which in tturn becaine the State
of business to be transacted by these banks;
Bank of India in 1955, following the recom(b) the structure and development of the
mendations of the All-India Rural Credit
mercantile community which supported and
Survey Coi mmittee. These institutions
benefited from the existence of these joint
occupied the 'commanding heights' in the
stock banks; (c) the impact these institutions
world of Indian banking, with the cream of
had on the structure of the economy (ecobusiness of the British and large Indian innomies) involved, and on the structure of the
dustrial houses. Till 1921, their entire
trading classes; and (d) the relative impact
managerial staff was wholly non-Indian.
of European ideas and indigenous growth
Iniiail otficers canme in the 1920s-a few
in giving the particular shape to the orgaas staff officers and another small group as
nisation
and functioning of the banks. This
probationary assistants. When the Reserve
is no doubt a satisfactory, though very
Bank of India was set up in 1935, the Imambitious, formulation, especially item (a).
perial Bank provided the first Governor, Sir
Alternatively, for an economic historian the
Osborne Smith, and key senior staff, most-

form but a prelude, an appetiser, to what is

still to come for the following eight decades,
but also because they cover a variety of
subjects which sometimes, though not invariably, appear linked to one another

THE long-awaited history of the evolution

ly European. This first instalment of the

history ends in 1876. Subsequent volumes
will cover the long, eventful and much better
documented and researched 80 years to 1955.
We thank R K Talwar, a distinguished

being. We shall endeavour to zomment on

both these varieties of mat, rial: on the

former mainly for certain lanc -narks in the
evolution of these banks, and on the latter
for the manner in which these have been interpreted, and how far they are pertinent to
the major matters in hand, and contribute
to the understanding of the mutual interaction of the institutions and the milieu.

objective could be stated in somewhat more

abstract, and at the same time more realis-

THE BANK OF BENGAL

able, terms as the effort at identifying some

of the major strands in the perception by
these banks of their role, as modified from
time to time by changes in the economic,

Chapters 3 and 4 provide an absorbing

account of the origin of state-backed banking in India around 1800, including perils

former chairman of the State Bank of India,

social and political environment, and then
for his unusually imaginative decision that
their efforts to meet that perception by
the bank's archives should be studied, and
moulding their structure and functions.
for entrusting the work to Amiya Bagchi
After presenting this formulation, Bagchi
somewhere in the early or mid-1970s. Shortly
states that "This ideal is unattainable by a
before this Bagchi had published a valuable
single author or even a team guided by an
study Private Investment in India, 1900-1939
author
in their first effort" (page 4; pagina(Cambridge U niversity Press, London,
tion in parts I and II being independent,
1973). Presumably the sheer magnitude of
references to part II here will carry 'II' after
the task given to the team of collaborators
(selected officers of the State Bank), working the page number), because "there are many
areas where theie are yawning gaps" in the
under Bagchi's guidance, of collecting
existing considerable body of secondary
materials from the archives of the State Bank
work on Indian economic history. Then
in India and in London, for a stupendously
long 150-year period, tracing scores of other follows a significant statement, "We have
tried to fill in these gaps through a rapid
primary and secondary sources, the sifting
survey, but they really deserve separate
of all this voluminous material by Bagchi,
and then his drafting of the work have taken monographs on their own". The more
serious reader is left wondering which of the
a heavy toll of time.
Historians of the modern period, as well

largely by their falling within the same

period. The volumes contain also some large

chapters where the author has attempted to
deal with the economic environment of contemporary India, the mileu in which the
Presidency Banks lived, moved. ad had their

yawning gaps have been filled in.

as those with special interest in the historio- The arrangement of chapters in the present volumes is chronological, as far as the
graphy of colonialism, wil' welcome this
work as it promises to provide an insight intobusiness of a single unit is concerned. Then
the working of colonialism in the spheres ot there are chapters on different aspects of the
banking and finance. They w-ill eagerlv w aitworking of a unit, for example, the internal
organisationi of the Bank of Bengal, or
all ihlese banks, like foreign
research effort. Bagchi is the first scholarcovering
to
exchange buLsiness being denied to them,
have unqualified access to these archivesinterspersed between the chronological
unthinkable before 1947 or really 1955. It
accounts. The plan regarding the subsequent
was the same regarding the British agency
volunmes which will deal with the rest of the
houses and the entire spectrum of British
for the further volumes of this massive

enterprise in India, as many scholars and the period to 1955 has not been revealed.
These two volumes, of a thousand pages,
present reviewer learnt to their cost.

of exchange banking, and the antecedents

of the Bank of Calcutta set up in 1806, with

the blessings of the Court of Directors of

the East India Company, and finally the
establishment of the first of the Presidency
Banks, the Bank of Bengal in 1809. This
bank retained, right upto 1921, its leadership,
qualitatively and in terms of the vast area
covered. The first Bank of Bombay, set up
in 1840, went through a tumultuous period
in the mid-1860s when Bombay was rocked

by a speculative mania, and collapsed. Out

of its ashes was born the new Bank of
Bombay in early 1868. The Bank of Madras
came last, in 1843, after going through the
tortuous process of the closing of the
Government Bank in Madras (founded by
Bentinck in 1806). For the period covered in
the present publication, the Bank of Madras
will unfortunately merit only one major
reference in this review. The volumes are
replete with many references to interesting
small issues on various matters, which lend
a peculiar flavour, especially for a student
of history. But in.a review one has to sacrifice referring to many of them.

Since all these three banks had the right

to issue notes, and the government held a

part of their equity and participated in

management, they had to have a proper
Charter, fully approved by the Court of
Directors during the days of the East India

Economic and Political Weekly June 11, 1988 1215

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Company, i e, upto 1858, and thereafter by

nary people, and met their need for a univer-

the Secretary of State for India. The Bank

sally acceptable medium of exchange. Now,

of Bengal began with a capital of Rs 50

the landlords or big merchants simply took

lakh, Rs 10 lakh being held by the East

bank notes and paid in bank notes. They

India Company, and the government nomi-

could now "hoard any gold or silver that

nated three directors to the board of the

came their way, particularly in years when

bank out of a total of nine. The charters of

business was slack. This meant that the com-

the two other banks were modelled on that

mon people had great difficulty in procur-

small sums and the population was so poor

that there was hardly any room for a large
circulation of bank paper. Indian retail
traders dealt largely in coins" (p 182). In
Bihar, only one-third the instalment of land
revenue payment by a landlord was receivable in Bank of Bengal notes, while in the
North-Western Provinces the notes were not

accepted at all for such purposes (p 318).

The agency houses' crisis in the late 1820s
chases from outside their villages or small
and early 1830s reveals the close nexus
towns. Thus, the prices of their produce
between the commercial community and the
declined and they had to pay a higher batta
Bank of Bengal and the East India Comor discount to the money-changer; conpany Government. Chapter 6 presents some
sequently the income distribution became
interesting facets of this. A number of promore unequal" (p 108). This entire unminent agency houses fell then, mainly due
fortunate chain of reactions, down to skewed
to the extreme vulnerability of Bengal's
export trade in primary produce, the close
thedistribution of income, begins with an
obviously weak link, as a note at the end of
links between private speculation and the
the chapter reveals "This argument is made
working of the government commercial and
in an embryonic form in a letter from
fiscal machinery, the complicated relationKeerpoy Factory, dated 18 February, 1812"
ships obtaining "between the plutocracy of
(Source: West Bengal State Archives). No
European private traders, the officialdom in
excerpt from the letter is provided for the
Calcutta, the Court of Directors and the
reader to evaluate the nature of this
Board of Control in London, and the East
"embryo".
India houses in the City of London" (p 131).
Bagchi does not explain why the zaminMany Indian banians also suffered having
dars or merchants should start to hoard gold
links with speculative ventures of Europeans.
or silver coins just because bank notes had
Early in 1833, Lord Bentinck's leniency
been introduced, unless something else haptowards the agency houses and the Bank of
pened at the same time. These notes did not
Bengal is evidenced by the exchanges of his
circulate freely. Even in the early 1830s, Bank government with the Court of Directors. He
of Bengal notes were predominantly of
was "over-optimistic about the prospects of
Rs 100 and upward, which could hardly be
the agency houses and had an exaggerated
used in the rural areas to purchase produce
sense of the government's responsibility
at the harvest time or give subsistence loans
towards them" (p 142). Trusting some agency
to peasants. According to an authoritative
houses as solvent, and prudently conducted,
source, notes were not then much used
in a letter on April 15, 1833, he conceded
beyond the commercial circles of Calcutta
that he had on his own invested some of his
and "in the districts payments for even staple
funds with these houses, solely for the sake
ing a medium of exchange that would be

of the Bank of Bengal.

According to its first charter, the business

acceptable to the government or for pur-

of the Bank of Bengal was confined, as far

as possible, to discounting bills of exchange
and other negotiable private securities, and
keeping cash accounts, and receiving deposits, and issuing and circulating cash notes.
Loans could not be of a duration of more
than three months, and could not be exten-

ded or renewed before or at the expiry of

three-month term. The security for loans
could be the company's paper, bullion,
treasure, plate, jewels or goods "not of a

perishable nature". For advance against

goods, the value of the loan could not be
more than half the estimated value of such

goods. A ceiling was placed on the rate of

interest chargeable by the bank, viz, 12 per

cent per annum. Throughout this period, the
discounting of salary bills features as one
of the steadiest items of business of the Bank
of Bengal. Under the rules and bye-laws the
bank discounted only internal bills with two
good signatures. Beginning with the early
1830s, the bank added cash credit accounts

to its array of credit instruments. The

number of commodities acceptable to the
bank as security is stated to have increased
significantly by then. Jewellery and bullion
were more important as securities in Madras
than elsewhere.

After an initial period of hesitancy, loans

articles of commerce were made in such

given by the Bank of Bengal grew in the

1820s, though with occasional setbacks.

Three times in that decade, the total crossed
Rs 4 crore, but came down to Rs 2.37 crore
in 1831. Indians apparently obtained 60 to

70 per cent of the loans granted. But Bagchi

of the example. "Upon the same principle",

i~~~~~~

points out that many of the Indians were

banians of European firms, and really borrowed to finance their prineipals (p 118). The
purposes of the loans could not be indicated

but they are stated to have been mainly given

against deposit of government securities.
Under its first charter (section 29), the
entire sum of debts of the bank, whether on
bonds, notes, or any other manner outstanding, at one time, and due or coming
due from the bank, shall not on any account
exceed the amount of the capital stock of

MODERNIZATION AND DEVELOPMENT

The Search for Alternative Paradigms
S C DUBE

Modernization, the dominant theme of the 1 950s and 1960s, has now lost its significance
while the concept of development has of late been subjected to a searching review
and a paradigm shift. But is there any consensus among scholars, policy-makers and
politicians regarding the goals and strategies for a new kind of development? Professor Dube sets out to answer this question while als; outlininq the dimensions of
the new conception of development which constitutes a radical departure from prevail-

Rs 50 lakh. On the average, during

1809-1822, bank notes were outstanding for

an amount of Rs 43,58,000 (p 101). Discusing approaches to Third World problems.

sing this matter, Bagchi remarks that the fact
that bank notes helped the merchants and
152 pages/220 x 140 mm/Rs 125 (hb)/Rs 55 (pb)/1988
zamindars meet their need for a medium of
circulation which was acceptable to the
VISTAAR Publications
government, or the fact that the activities of
A Division of SAGE Publications India Pvt Ltd
the bank helped improve the credit rating of
the government, was not an "unmixed evil"

(sic). Earlier, he continues, the zamindars or

merchants had to pay their dues to the
government or other large creditors in specie,
and some of that trickled down to the ordi-

1216

Economic

and

SAGE PUBLICATIONS INDIA PRIVATE LIMITED

Post Box 4215, New Delhi 1.10048
Political

Weekly

June

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11,

1988

he stated "I think the government should put

forth its helping hand... amidst these

monopolies and exclusions, where else is

there any capital, or riches, or means of
supply? The government itself is everything,
sovereign, landholder, trader, banker. Playing all these parts it is incumbent upon it

imported. However, no hard data are

presented, as perhaps none are available.
After some discussion, the proporsal for the
General Bank was dropped.
The Mutuny of 1857-58 was, we would

were balances in banks and treasuries drawn

down? What was the role of banks in all of

this? What was the impact on domestic production and trade? Incidentally, annexure
11.1 to this chapter presents month-end

imagine. a Eesting time for all the presidency

banks, especially so in Bengal. But only a
fraction of chapter 11 deals with the events

figures from December 1854 to December

1861 of cash balance, bank notes in circulation, and total assets and total liabilities of
to do its duty, and in an hour of unexampled
calamity to save the innocent from ruin"
during the mutiny itself. (Incidentally, except the Bank of Bengal. Total assets are shown
for naming the chapter as "India's First War
(p 143; quoted from Philips, Corresponconsistently more than total liabilities except
of Independence and the Bank" these events
on one date, end of April 1855. The discredence of Bentinck, Vol II, p 1047). Very soon
he grew wiser, and mildly reprimanded the
are referred to as 'mutiny' in the body of the
pancy seems to narrow from late 1859
onwards, but erratically.
government directors on the bank's board
chapter. Historians should find another, to
them less unacceptable, word, say, Rebellion
for taking '"an erroneous view of their duties.
Students of the Indian economy would
Their first obligation was to the bank". He
greatly welcome any light that Bagchi's
or Revolt.) There was apparently a credit
went further: "Nor can I in candour
crisis in late 1856 the cause of which is not
researches can throw on the marked seasonaexculpate myself and others, our prede-

indicated. Discount rates on private bills shot

cessors, for the insufficient superintendence

ment of food and non-food crops-for

up to 14 per cent in early 1857, but soon
exports particularly and domestic use. What
receded to 9 per cent, and then 7 per cent.
was the financing pattern for exports? Did
Then came the mutiny, which upset the
the presidency and exchange banks play a
normal pattern of low rates in the slack
role in trying to ameliorate the strains on the
season. The government directors of the
money market that such demand regularly
Bank of Bengal cautioned the bank against
generated and which caused considerable
the diminishing cash balances and the need
disadvantage to many parties, not least the
to raise discount rates, but were out-voted.
A short while later they suggested explicit
growers? The present volume has not
covered this subject except parenthetically.
credit rationing, which was enforced, but
Perhaps it will figure more in the later
proved ineffective. We are not told -why. Since
volumes.
the mercantile directors negatived all proposals for changes in rates or margins, the
government directors charged that the policy
BANK OF BOMBAY: CRISIS AND COLLAPSE
of the bank had resulted in "(a) a small
The most noteworthy chapter in the life
section of the community obtaining better
of
the first Bank of Bombay relates to the
terms than they had any fair reason to
few years immediately following the loss of
expect, (b) a diminution of the profits of
the right to issue notes, and the frenetic
shareholders through reduction in the inefforts to widen the scope of operations.
terest income of the bank, and (c) an inThis, coupled with a corrupt management
crease in the risk of loss because of an
and a few clever and highly corrupt clients,
unduly large accretion of loans held on an
led the bank down the precipitous road to
inadequate margin" (p 291). (For (b) to be
bankruptcy. Bagchi's account of the episodc
valid, the demand for loans would have to
be inelastic so that at higher rates relativelyin chapters 25 and 26 makes superb reading.
Briefly, by a combiniation ot the cleverness
more loans would be taken.) This led the

over the affairs of this most useful and important institution" (p 143). Bagchi states

that the government directors and the

secretary of the bank were then too closely
interested in the fortunes of the agency
houses to pass up any opportunity to salvage
them. Many top civil servants and merchants
were blood relations. The collapse of agency
houses cost the bank about Rs 9 lakh, if not

at least Rs 15 lakh. In the mid-1860s the

losses of the Bank of Bombay dwarfed these
figures.
The chapter on the organisational set-up

of the Bank of Bengal till 1859 (pp 227-266)

could be pruned. It deals mainly with staff
matters, including a long narration of the
conflict between the Khazanchee and the
Secretary, establishment expenses, and

discrimination against Indian staff, but not

significant management issues of how the
management arrived at decisions, how far

operations were effectively decentralised, the

means of keeping tabs on branches, etc. This

chapter is embellished by a number of plates

showing mainly notes, cheques, drafts, and

personalities-all Indian, including Seth

Premchund Roychund of Bombay about

whom a lot is said in Part II.

In 1835, the capital of the Bank of Bengal

was increased to Rs 75 lakh, including an
increase of the capital held by the East India

Company to Rs 11 lakh. Within three more

years, the capital was raised to Rs 107 lakh,
without further government participation.
About this time, the bank's directors were
confronted with the threat of a General
Bank of India, proposed by a group of
powerful East India merchants in London.
According to Bagchi, the directors of the
Bank of Bengal correctly divined that the
ambitious plan of the proposed bank, covering all the presidencies of India as also

China, was suggested by the desire "to find

a means of employing profitably the existing

bank to adopt measures "to restrict the

accommodation heretofore unreservedly
given on deposit or government securities
and otherwise to the public and to contract
the bank's circulation", but the specific
measures have not been spelt out. It was also
maintained that the real pressure on the
bank's resources arose from "the exchange
of notes for silver principally by natives.
Distrust caused by the present political state
of the country is at the bottom of this

anxiety to possess the precious metals, and

should the demand for silver in exchange for
notes continue, nothing short of a suspension of cash payments could prevent the
bank from appearing out of rule for a time"
(p 291). After some time the storm passed.

pact of the mutiny on the monetary, financial and real sectors. India had then raised
(p 274). The source of this presumption is
huge loans in London. Apart from the costs
not given. Since Bagchi has elsewhere held
in the UK for the British army brought in
that most of the private British investments
to quell the mutiny, paying for armaments,
in India represent only the ploughing back
etc, and meeting the Home Charges at a time
of savings made in India, this interpretation when remittance from India was out of quesregarding the proposed General Bank's
tion, very considerable sums must have been
desire seems incongruous. And banks, in any
spent in India in rupees to fight the rebels.
case, rely predominantly on resources raised
How were the funds brought into India,
locally, apart from some seed capital being
remitted to the theatres of war, and how far

and

of some, the oversight of some others and

the wilful neglect of yet others, the Bombay

Act X of 1863 was passed, and received the

assent of the governor-general and the

secretary of state. Among the dangerous innovations were these: the bank could discount any negotiable security, even a promissory note signed by one person; the old
Act prohibited all advances (except loans on
the security of government paper, bullion or
imperishable goods), to any one firm or
partnership, for a larger amount than Rs 3
lakh or for a longer period than three
months, whereas the new Act contained no

such restrictions; overdrawing of accounts

which the old Act prohibited was now left
to be provided for by a bylaw, etc.

No further light has been shed on the im- The capital of the bank was quadrupled

superabundant capital of Great Britain"

Economic

lity of the demand for funds for the move-

Political

Weeklv

within less than a year, and management was

pressed to employ the funds, "particularly
when there was a vast capital in the hands

of other banks and 'financials' that were

floated during the 'boom' years" (p 204-1I).
The blame for the crash of the bank is said
to lie squarely "with the imbecility and
dishonesty of the secretary and treasurer,
James Blair, the cupidity and complicity of
many of the bank directors, including the
president, Birch, the laxness of government

Tfune

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11

I9Rx

'7

supervision and the defects of the Charter.

ed, in the next page, by the statement that

by active combination or passive inaction,

Act of 1863 in not laying down stringent

to defeat any movement of the kind, unless

enough guidelines" (p 204-II). The role of

"Dickson was not particularly diplomatic as

regards possible reactions in Madras (not to

Premchund Roychund, "a native director"

speak -of Bombay)" and then on page 257

interests.

(whose father was the broker of the Bank

by "this optimism (or arrogance?) proved to

indeed they find that it subserves their own

of Bombay) in the corruption and mis-

be thoroughly misguided". The proposal

BANK OF MADRAS: ENQUIRY INTO

management of the bank in this period reads

ultimately fell through. It is interesting to

BRANCH MANAGEMENT

like a thriller. Blair put himself unreservedly

note here what Keynes wrote regarding this

memorandum: "a memorandum of complete grasp and mastery by Mr Dickson,

into his hands, and embarked upon large

share specil4ations.

From the early 1860s when the Bank of

Madras started opening branches, at first at

seaports, the management felt some in-

Premchund Roychund was then a promi-

celebrated (in his own time) for pre-eminent

nent person. He speculated largely in cotton

ability as secretary and treasurer of the Bank

and soon amassed a large fortune. When the

share mania set in, his name and influence

of Bengal" (Indian Currency and Finance,

1913, p 165). Bagchi could have reproduced
the document (a mere seven pages) since
many a serious reader may not easily have

cient protection for the bank in the event of

imbecility and weak moral character of Blair

access to it. We may now quote from a very

significant minute of the viceroy, of July 12,

earlier branches being affected by the bad

and soon acquired great influence over him

1867, on Dickson's proposal:

were considered essential to the safe laun-

ching of the ephemeral schemes of the day.

Intelligent and subtle, he fathomed the

and his subordinates, with complete com-

On the question of separate banks on the

mand of the funds of the bank. The bank

one hand and a general bank for all India

security. Thus, for Cochin, it is stated that

"a mere promissory note with a letter (unstamped) from the borrower was not suffithe death or bankruptcy of the borrower"
(p 375-Il). Apart from the fortunes of the
days as the boom in the export of cotton,
which was also produced in Madras, petered

out, the bank managers are stated to have

had difficulty in steering a safe course where

became in effect Premchund's. His own

on the other, and in particular on that of

debts to the bank rose, and when he failed

resuscitating the Bank of Bombay, or allow-

in August 1866, the Rs 25-odd lakh due from

ing an amalgamation with the Bank of

borrowers were non-Europeans. It was also

Bengal, I am decidedly in favour of the

difficult to operate outside British territory

former alternative on public grounds. I see

for bringing defaulters to heel.

him were irrecoverable. The securities given

by.him proved excessively overvalued-land

and jewels-and the promissory note was
valueless. Even then his charities were
munificent and the Bombay Bank Commission has recorded Sir Bartle Frere, then
governor of Bombay, stating tha. Premchund's position was like nothing that he
had ever seen or heard of in any other community (p 212-I1). Even later on this merchant prince continued his prosperity and
munificent charities. How many of our gods
have clay feet!
This was but one of the losses. Due to lack
of supervision over most of its branches,
almost Rs 40 lakh were iGst in six branches,
one-half in only one of these-at Kalbadevi.
Bagchi has also recorded that "Sir Henry
Partle Edward Frere, the flamboyant governor of Bombay... was guilty in wilfully
shielding the Bank of Bombay from public

no such benefit either to the state, or to the

Unlike its sister banks, the Bank of

community, in the other scheme as should

Madras derived its profits predominantly

induce the government of India to support it.

from its branches. The fall of these profits

I submit that it is not for the interest of

in 1870 and 1871 led to searching queries by

a state that a great institution of the kind

the government of Madras, and then a pro-

should grow up for all India, the interests of

which may in time be opposed to those of

the public and whose influence at any rate

may overshadow that of the government
itself. A bank of such a character would be

very difficult to manage. Few men in India

would be found equal to the task (p 266-1I).

It is worth remembering who the viceroy

was-Lord Lawrence. We shall revert to this

statement in our concluding remarks.

We are tempted (before closing this sub-

ject) to quote Keynes' further note on this

episode:
The secretary of state's sole contribution
to the discussion-no need to name him, it
is the eternal secretary of state speaking, not

or official scrutiny even when it was obvious

that the bank had been badly mismanaged"
a transient individual-was as follows: Any
(p 249-1I). The use of expressions like "the
proposition for changes of a fundamental
obtuseness and mulishness displayed by
character, such as the establishment of a
Frere" here, the reference to the "recalcitrant
central state bank, or a return to the system
minions" of Sir Charles Wood and some

of government treasuries, which may here-

after be taken into consideration, must be

sentences in Section 22.8 (p 82-Il) aile a few

of the remaining infelicities (cf Preface, xi)

needing attention.
AN EARLY PROPOSAL TO MERGE THE

PRESIDENCY BANKS

In January 1867, as the dust was begin-

ning to settle, and the Bank of Bombay

shareholders formally decided to halve their

capital, there were proposals for amalgamating this institution with the Bank of Bengal,
or the latter opening a branch in Bombay.
In March that same year, Dickson, the
renowned secretary and treasurer of the
Bank of Bengal, submitted a detailed proposals for amalgarnation of the three banks
to the directors of his bank to establish "one

the majority, or even a large proportion, of

viewed in its general bearing, and not with

test by shareholders. The scrutiny of the

government was at the instance of the
secretary of state for India whom one of the
shareholders had approached. A significant
finding was that branch agents were entirely
in the hands of their cash-keepers. The latter
induced them to do business with persons
unworthy of credit. The acting accountant
general claimed that as a member of the
board he had protested against this practice,
and had pointed out that the agents should
be required to learn the languages of the
people among whom they worked. He further believed and put on record that Indians
would make excellent agents. The directors
were "not favourable" to this idea, and con-

sidered that it would be "most distasteful to

a large proportion of shareholders, and that

even one such appointment would have a
prejudicial effect on the value of the
shares.. ." (p 398-1I).
The continued anxiety of the shareholders

special reference to circumstances of a particular presidency, or of a particular crisis'

ultimately led the government to place at the

(opI cit, p 165).

former acting accountant general, for a

detailed enquiry. The guidelines issued to
him by the government referred first of all
to the need for a "full report on the finan-

We shall quote one paragraph frooi.

Dickson's memorandum, which reflects his

keen insight into the character and resilience
of what has since come to be known as the

indigenous banking system of India. There

is a prophetic rirO to this:
The usages, customs and habits of the

people of this country, who are a nation of

traffickers in money, as well as the inland
exchanges, are opposed to the rapid growth
of purely western customs and institutions.

They inust ever retain in their own hands,

bank's disposal the services of R Taylor,

cial position and prospects of the bank, so

as to enable the government to judge how

far they are warranted in entrusting to it the

large state balances which are now in its
charge" (p 401-I1).
Bagchi has rightly commended the report
which made far-reaching recommendations

to improve the system of control and administration. For the branches, Taylor would

against all competitors, by far the largest

rely less on the inspector (whom the regarded

portion of the purely banking operations in

Bagchi has called this "a document of
India, and legislation cannot possibly reach
Bismarckian dliplomacy" (p 255-II), follow-them. They have sufficient influence, either

than on an efficient branch department at

great Central Bank for all India".

rather as an auditor of bra.nch accounts)

head office, headed by someone 'in the

Ecnomic and Politic-i1 WPP1kCIv line 11 19QR

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footing of deputy secretary, the oldest, ablest

and most experienced of the bank's agents".

1g75, the secretary of state for India stated

and 1866, and each time it was decided to

that although the former may. never have

confine their operation entirely to domestic

undertaken to keep balances with 'these

banking." This is the opening statement of

banks for the use of persons engaged in

chapter 19, 'The Presidency Banks-and Ex-

He called the existing system of head office

control as the mechanical check of an accountant rather than the intelligent control
of a manager. He deprecated the excessive
reliance of agents on cash-keepers whereby
the agents tried to shift responsibility and

trade, "from the tone of the appeals addressed to you it is evident that this conception
of Your Excellency's duties had in fact arisen
in the public mind, and was doubtless due

escape penalties for mismanagement. Bagchi

to the relation which had existed between the

sought to be incorporated in the revised

refers here to "the superiority of the system

state and presidency banks" (p 449-II). Eventually, it was decided to have an explicit

charter of the Bank of Bengal to allow it to

that Dickson seems to have introduced in the

Bank of Bengal". We could not trace this in

chapter 9 or chapter 23; maybe we missed
it by oversight.

Before we discuss some general 'chapters

covering all the three banks and the
economy, we may notice the statistical

change Banking'. In the following paragraphs, it is stated that in the aftermath of

the government considering the proposal for
General Bank of India in 1836, a clause was

agreement with these banks only for minimum balances at the head offices, and to

conduct exchange operations. But the proprietors of this bank "resolved to modify the
relevant clause and add 'payable in India'

pay interest if actual balances fell below the

after the 'buying and selling of bills of ex-

minimum; the government refused to enter

into any agreement regarding the custody of

of Bengal Charter of 1839 and copied in the

change'. This was incorporated in the Bank

charters for the Bank of Bombay (adopted

and 20 statements. These provide data on

treasury balances at the branch stations, and

thus effectively sequestered the major part
of its balances from the custody of the three
banks. This ended the extension of branches

a wide range of interesting subjects, e g,

by these banks with the support of govern-

bank notes and claims, loans, gross and net

ment balances.

dinance by the major presidency bank had

proved to be the proverbial last nail to the

coverage of these volumes. Between Parts I

and II, the author has given some 100 tables

profits, rates of discount, portfolio changes

and working dividends, province-wise trade,
etc. The largest number are for the Bengal
Bank. But most of them are for one, or a

small cluster of years. Serious students will

miss consistent longer-term series of data for
the more significant indices of the nature
and extent of functioning of the three banks.
PRESIDENCY BANKS AC oI01 1876: ISSUES

For the security of the balances, the

government came ultimately to rely on the

Presidency Banks Act augmented by a set
of mandatory bylaws rather than on any in-

tensive system of inspection. In the letter of

the secretary of state mentioned above, his
suggestion was to properly -'insert into the
Act the restrictions which do not injure their
commerce but increase the confidence they

when the Presidency Banks Act was passed.

enjoy. They should be required to abstain

from the hazardous business of foreign exchanges, and from lending on any but the
most approved securities" Being supplied

The government was for some years ques-

with certain weekly statements and such

tioning the wisdom of continuing to hold

other confidential information as may be

necessary, "it will not be necessary to reserve

AND THEIR SOLUTION

This instalment of the history ends in 1876

shares in these banks, especially since the

failure of the first Bank of Bombay when
some of its shareholders attempted to fix
legal responsibility for the failure on the
government. Early in 1872, the secretary of

state instructed the government of India "to

a power of inspection, which might impose

upon you in the public view an undue
responsibility for the management of the
banks, and would in other respects, place the

take measures for discontinuing the connec-

government in a false position towards

them" (p 452-II). How very true, and what

tion with the banks" (p 424-I1). This led to

wise words these are, and relevant even after

intensive discussions. A few major issues

the lapse of over a century.

were involved. Firstly, how would the govern-

ment dispose of its shares, and would the

banks' capital be reduced or continue as
before? Secondly, what would be the conditions governing the use of government
balances by the banks? Thirdly, were any
restrictions to be imposed on their business?
And fourthly, what kind of inspection or
guarantee would be provided to ensure the
security of the government balances in the

custody of the banks?

The first issue was decided in November
1875. The Bank of Bengal bought the shares

of the government and sold a part to private

investors, the profits being credited to
reserves, benefiting the private shareholders.
For the Bank of Madras, the government's

shares were acquired by the bank at a

premium lower than in the market, again

The real roots of the future Imperial Bank

of India are perhaps to be traced to the
discussions and decisions in the mid-1870s.
The agreements and statutory provisions
provided an unusually strong and resilient
framework within and around which the
three banks could grow in strength, although
along brazenly conservative, cautious lines.
Perhaps Bagchi will analyse for us in future
volumes how far their exclusion from foreign
exchange business (discussed below) in the
disturbed conditions in the next two decades
was a blessing in disguise (in not having to

sequester "part of their assets abroad for

effectively participating in this business") or

the loss of a worthwhile experience of
mastering a -difficult art.
PRESIDENCY BANKS AND EXCHANGE

benefiting the shareholders. In Bombay,

David Sassoon and company bought the
shares of the government in the new bank

BANKING

in 1840) and for the Bank of Madras

(adopted in 1843)" (p 473). So, even by the

early 1840s, a definitive, self-denying or-

coffin.

Bagchi had earlier recorded an interesting

facet of this decision by the Bank of Bengal.
While dealing with the perils of exchange
banking in the later portions of chapter 3,
he cited some data, only for one year,

1827-28, which "underscores the fact that in

1828 the company still handled the major
part of the business in bills of exchange...
whoever handled this business in bills of exchange was still heavily engaged in foreign
commerce. The business was risky but highly
profitable, and served as a potent instrument
for controlling or at least monitoring the
moves of potential competitors. Thus,

neither the company nor the privatc agency

houses which were heavily represented on the
board of the Bank of Bengal from the very

beginning, would have had an incentive to

relinquish the foreign exchange business,

even if contemporary canons of AngloSaxon banking had permitted the handling

of such business by the Bank of Bengal"
(p 53). Five years later, in 1833, when the
company lost the monopoly of trade with
India, The agency houses were presumably
in a stronger position than before, though
there would have appeared some chinks in
their armour as they began to face competition from private traders in
elsewhere. There was nothing
after 1843 regarding exchange
the presidency banks, except in

the UK and
more to say
business and
a minor way

in the early 1960s.

This question of foreign exchange business had come up in the discussions that
took place as a fall-out from the government's consideration of the proposal for a
general bank of India in the mid-1830s.

Charles Morley, a government director on

the Bank of Bengal (and perhaps also then
president) thought that the remittance

business could be easily conducted by the

Bank of Bengal. H T Prinsep, earlier secre-

tary to the government of Indialin the finan-

of Bombay. The second issue, government

Bengal, Bombay and Madras should operate

cial department, and then a government

director on the board of the Bank of Bengal in

balances, proved more controversial. In a

in the market for foreign exchange came up

the late 1820s and early 1930s provided a more

letter to the government of India on May 6,

for discussion several times between 1837

"hard-headed" view. "As for the notion that

v--

--

--

--

D.

"The quest ion whether the Banks of

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cil immediately after the mutiny), intervened

personally to obtain a royal charter for the
Chartered Bank of India, Australia and

the present mode of effecting the annual

remittance for home charges involves an
interference with commerce, it must be

admitted that the buying and selling of bills

China late in 1853. The charter specifically

of exchange must always provide some effect

made obligatory a reference to the colonial

upon trade, but whether the remittance be

made through the agency of a bank which
shall buy and sell the bills, or these are
bought and sold directly by government,
makes very little difference to trade, while
under the present system the government

office before branches in Australia and New

make on the operation, and the merchants

grant a charter... the legal position about

get the bills free of that brokerage or agency

profit" (p 276). It seems very likely that the
board of the Bank of Bengal was influenced

to lay down conditions for operation within

Zealand could be opened. The colonial

administration there did not allow this. "A

clear case of discrimination against the
Indian government was thus condoned by

the British governnient. It is important to

evidently saves the profit that the bank must
emphasise that in spite of the decision to

by this view when shortly afterwards it

decided to adopt the self-denying ordinance
referred to above. We are only attempting to
put together some pieces of the jigsaw puzzle
lying in different parts of the book.
To revert now to chapter 19, we are happy
that Bagchi has here thrown interesting light
on the attitude of the East India Company
towards banking institutions not chartered

the competence of the government of India

the Indian territory remained intact" (p 487).
Bagchi quotes the unequivocal opinion of

the attorney and solicitor generals in the UK

regarding the eligibility of a bank registered

under the Companies Act of 1857 and 1858

of the UK transacting every kind of banking business in the colonies. "Whether the
Act applies or not, we think that, as to

everything which such companies or their

promoters may propose or attempt to do,

in lhdia, but wishing to engage in exchange elsewhere than in the United Kingdom, they
business. Thus, there was the instance of the may be restrained in such manner as may
Bank of Asia which was attempted to be
promoted in 1840 on an ambitious plan, including note issue and exchange business
with limited liability. By various steps the

be thought expedient by local legislation"

(p 489). This legal opinion was passed on
by the Treasury Lords to Sir Charles Wood,

the secretary of state for India. The reader

application travelled from the Privy Council

must concur with the author that "the
to the C(ourt of Directors of the Company. The
historian can only record the resounding inlatter felt that a charter or act of the governactivity of the India office and the government of India would be absolutely necessary
ment of India in regulating the operations
to enable any such institution to enjoy corof exchange banks despite this clear legal
porate privileges in India, but this was not
opinion about their competence to legislate
contemplated in the draft charter submitted in the matter"
(p 474). The promoters submitted a revised

plan, halving the capital to ? 1 million,

In the Introduction, while indicating his

surrendering the right of note issue, but stillsources, Bagchi has made a special mention
wanting limited liability and the right to con-of three books on banking published in the
last century, by C N Cooke (1863), G P
duct remittance operations between Europe
and the Company's territories. As the Court
Symes Scutt (1904) and J B Brunyate (1900).
of Directors still insisted that a bank with
In 1976, the State Bank of India brought out
limited liability must not engage in exchange

these volumes to mark the centenary of the

business, the promoters dropped the matter.

About this time H T Prinsep gave an
analysis of the permissible banking operations in India which reveals the adamant
attitude of many government officials
towards exchange banking bv chartered

Presidency Banks Act. We may refer to only

one matter from Brunyate's book. While

perusing the sections in Bagchi's book on
exchange business, a question had occurred
to us if these banks made a last bid to get
the exchange business as a trade-off for sur-

banks (pp 474-75). The Court of Directors

rendering the right of note issue. So it was
had refused to sanction the combining of
remittance with other banking operations,

a pleasant surprise to see in Brunyate's book

that when in the context of this impending

viz, the issue of local bank notes in which

loss of business these banks were asked to

the bank might pay bills of exchange.

Prinsep supported them: "Such a scheme of

state what modifications were required in

their existing charters, the Bank of Bengal
alone attempted to definre certain modifica-

paper credit might be built up into a fabric

of too many storeys for the material and
foundation, and so produce, by its sudden
dissolution or ruin, too much confusion to
be hazarded for the sake of the experiment"

sion was granted to remit funds to England,

"for constituents in the agency department".
MONETARY AND CURRENCY POLICY OF
GOVERNMENT OF INDIA

Part II, covering the period 1860-1876,

begins with two chapters, 'Monetary and

Currency Policy of the Government of India'
and 'The Economic Environment, 1861-76'.
The first, one of the longest, gives a detailed
narrative of the exchanges between the secretary of state, Sir Charles Wood, and per-

sonalities in India on Wilson's proposals on

government paper currency (including the
relative claims of the banking and currency
schools), and the arrangements finally made.
Without reviewing these exchanges, may we
ask why specifically the author seems
opposed to what Wood and the government

of India ultimately achieved, viz, to wrest

note issue out of the hands of the presidency
banks? He has shown that these banks were
predominantly British-owned and control-

.led, served the interests of British trade and

industry-very often hurting Indian interests, and blatantly discriminated against
their 'native' staff. In short, they were a
potent set of institutions for colonial exploitation, being most of the time in handin-glove co-operation with the-then government. Why should they profit from note
issue?

This chapter also discusses the question

of a gold currency for India, acknowledgedly

a very complex issue. During the period
covered by this book, its supporters were
certainly unable to answer some very crucial
questions (cf Coyajee, Development of Currency System of India). And the fall in the

gold value of silver, which began to show up

in the late sixties, became serious in the 1870s
and introduced further unknowns. In this

section Bagchi has quoted de Cecco's Money

and Empire, a book that makes a signal contribution to the subject. But it does not really
cover the period now under discussion. The
brief six-page treatment seems to do less
than justice to this important question. In
a major attempt to interpret financial and

economic developments, it would have been

of great value to assess the nature of
damages that the government's attitudes and
actions (or inaction) were inflicting upon the
monetary and credit systems in general, and
on savings and investments in different
sectors of the economy in particular, including a protracted capital flight from India,
alleged by some responsible authorities as

being due to the fall of the rupee in terms

tions to relieve restrictive provisions, and
of the pound sterling, which perhaps Bagchi
asked in particular to be allowed to engage
will talk about in his later volumes.
in exchange operations with England.
Brunyate writes that this must have met with
THE ECONOMIC ENVIRONMENT
some support, for, in one draft of the
The infelicities of mixed metaphors apart,
Charter Bill, a clause was inserted to give
We have somewhat similar difficulties
the proposition certainly looks sound on the
effect to this suggestion. The directors of thewith the chapter 'The Economic Environface of it.
Before concluding this chapter, Bagchi

cites how James Wilson, then financial

Bank of Bombay viewed this with apprehension-as being unsuited to the character of

secretary to the treasury under the Aberdeen

these institutions, and it was ultimately drop-

administration (to become the first financial member of the governor general's coun-

ped. Maybe it was known that the secretary

ment, 1861-1876', where the treatment seems

at places inadequate and there are judgments
that need perhaps some qualification. Thus,
in the section dealing with the government's

of state would not agree to it. Only permis-

QBal policy, 1860-75, since expenditures and

1220

Economic

and

Political

Weekly

June

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11,

1988

revenues have been mentioned, that government made strenuous efforts to reduce spending and these were considerably successful
may have been mentioned. And, it was not
merely the European army which was
swollen, but large parts of the entire
bureaucracy (civil and judicial) and police

with the memory of 1857 still fresh in its

mind) to undermine the hold of these
classes on the economy of rural India.

The treatment of 'foreign trade', etc, in

section 22.3 throws a lot of light on these
issues. One cannot again help doubting the

Calcutta's and northern India's leading merchants and of the mercantile community of
Madras, the business environment of the
New Bank of Bombay, and the Khazanchees

of the Bank of Bengal at the head office are

often very revealing.

The exceedingly breif-barely 10 linestreatment of the jettisoning of the proposal

to extend the nermanent settlement after the
1860s is, to say the least, unexpected. Bagchi

links that much of the material presented here

would have to the major concerns of the
AN ISSUE IN ANALYSING COLONIALISM
work. This feeling is heightened by the comThis chapter raises another issue. It spans
mendable frankness with which the author
the 16 years till 1876. An earlier chapter in
admits that "there is little direct evidence of
part I, 'The Political and Social Setting,
the financing of these European-controlled
1806-1848' dealt in an engaging manner with
manufacturing, enterprises by the Bank of
a few economic matters too, e g, external
Bengal. Whatever evidence exists is of a
trade, and governmental loan operations and
negative kind. The enterprises, which were
the money market, which influenced these
often formally floated in London... had
banks' operations. Between them a 12-year
exchange banks as their major bankers. This
stretch is left uncovered, except that foreign
was logical because these companies im-

has not spelt out his reasons, but would he

ported practically all their machinery and

seriously have liked the system extended to

other parts of British India when a devas-

spare parts and exported most of their

output" Then where do presidency banks
come in? A part answer, though for a later

were set up after the Crown took over the

administration of India. On the income tax,

it may be mentioned what shrewd secretaries
of state knew from thousands of miles away,
viz, how the resident British interests used

as their mouthpiece the elite of India to voice

opposition to this tax.

tating body of evidence had already accumulated of the naked exploitation of the
peasantry by the zamindars in areas under

permanent settlement since 1793? Even a

person like John Strachey, not particularly

noted for compassion for the Indian poor,
could not conceal his sense of horror of this
phenomenon in the lectures which he

delivered in Cambridge in 1884. In India, Its

Administration and Progress, 1888 (this
book and the Strachey brothers' joint work
on public works and finances of the govern-

ment are not listed in the bibliography in

part II), Strachey has many harsh words to
utter on the permanent settlement, e g, "The
crowning misfortune has been the destruction

or non-recognition of those rights of the

masses of the agricultural population which

the authors of the settlement undoubtedly

intended to preserve" Again, quoting from
a Cobden Club study on this subject, "The
executive more and more abrogated the functions of recording rights and protecting the
inferior holders, and left everything to the
judicial tribunals. The putwarees fell into
disuse, or became the mere servants of the
zamindars... No record of the rights of the
ryots and inferior holders was ever made. . ."
(p 417). "Bengal was the most backward of

the great provinces of India. There were

almost no roads or bridges or schools, and
there was no proper protection to life and
property... robberies and violent crimes by
violent gangs of armed men, which were
unheard of in other provinces, were common

not far from Calcutta" (p 420). It may be

contended that some of these sentiments are

but the proverbial crocodile tears and that

the experience with the 1793 measure (an

enactment in 1859 tried for the first time,

we believe, to alleviate to some degree the
misery of the ryots under the system) had
taught the government to so design the
measure now as would give minimum protection to the ryots' interests. But by then
the landholding, moneylending and trading

period, is one piece of information (on page

315-1I) that in early 1874 eight exchange
banks of Bombay had been in debt to the
New Bank of Bombay to the tune of Rs 68
lakh. This is not a large figure, though it is
only as on a particular date. And on page
133 Bagchi states that the agency houses
financed to some extent British trade and
industry by taking deposits from private
individuals, offering higher interest than
they could obtain on government paper.

bQrrowing for railways and irrigation have

merited mention. But there were other
foreign investments, and public works other
than railways-all of which must have
variously stimulated activity. There was also
the demise of the East India Company in
1858. What remains to be developed is the
impact of all these on the business of the

presidency banks. This question is, we feel,

important if such chapters are proposed to
be included in future volumes too. For
economic developments, the appropriateness
of particular cut-off points is very often a
tricky matter. If it is intended that this work

should also broadly cover the economic

history of the period, a more serious effort
will be needed, fully realising its magnitude.
A deeper issue appears to be the seemingly
irresistible tendency of many scholars at
a black hole.
faulting colonialism and the agencies which
We have strayed. Dealing with the inflow
of foreign capital for railways and irrigation may have been identified with it at different
times and in different contexts for nearly
companies guaranteed by the secretary of
everything that went wrong, or failed to
state (add, on the resources of the Empire of
happen. Two long centuries of colonial rule
India), the net capital receipts are stated to
have undoubtedly done irreparable damage
have turned negative after 1871-72 (p 65-II).
to our social, political and economic fabric
This, it is submitted, is not a correct reading
while they of course introduced us to some of
of the source quoted. Then certain 'leaks'
the cherished values and richness of the
from the net capital receipts are listedEven some informed guesses regarding this
matter would have been very welcome, as
this important area continues to remain in

civilisation of Europe. Neither the pluses nor

e g, interest and amortisation payments
the minuses have yet been fully grasped and
abroad, purchases abroad of rails, rolling
analysed. Many of our almost intractable
stock, etc, fees to directors, promoters and
present problems arise from colonial rule.
controllers in London, and part of the
This reviewer makes no claims to scholarship
salaries paid to supervisory expatriate staff.
in these intricate matters, a serious disThe last item constitutes a separate leak,
cussion of which will involve almost
generated by private remittances in the current account in the balance of payments. The
author's next step represents a leap which
we cannot follow, viz, his own "very approximate measure of the leakage is the dif-

philosophical issues. He only submits if evrn

at this date we cannot attempt to distance
ourselves a little, and with a conscious effort

look for further evidence on these matters,

ference between the total value of exports

and imports, after taking into account any
net import of treasure", as also the implications of table 22.3 showing such exports and
imports for the subject under discussion,

even such as may hurt some of our cherished

views; and begin to see how far at least some,
doubtless miniscule, responsibility for the

tragedy that was the 19th century rests on

our own actions then, independently and in
collaboration with the colonial interests. The
quite apart from the fact that rails and rolgreed and callousness of the many monied,
ling stock categorised as 'leaks' already
landed and trading interests, small and large,
figured in merchandise imports. We only ask
if it was appropriate to so treat this impor-may have to answer for some of the things
tant subject when a set of balance of

that happened then.

classes had acquired immense strength (of

which proofs abound) and they would
mount a serious opposition to any effort by

payments estimates for this period was at

hand, not to speak of the trail-blazing work

A 'THESIS' TO BIND THE PERIOD 1806-1876

an alien government (in any case doubtful.

The sections on the racial composition of

Economic

and

of Dadabhai Naoroji.

Political

Weekly

We have now considered a few landmarks

in the history of the presidency banks, and

June

11,

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1988

1221

Their opposition to many tax measures, even

also some aspects of the contemporary
where Manchester was not involved, is well
Indian economy down to the 1870s. We have
known. We have earlier quoted from a
overlooked that this has lengthened the

review because of the value of this pioneering work and also our interest in this period
of our history of which much is still obscure.
Some notes of dissent and suggestions have
been offered, mainly hoping that to the
extent that they meet acceptance, this may
influence the design of the future volumes,

minute recorded by Lord Lawrence on the

proposal to merge the presidency banks, no
doubt originating with the strongest unit

the period that they will cover abounding as

much with materials as with controversies
over interpretation. A research project of this
magnitude is an opportunity of a century.
We now conclude with one last observation. The reviewer begs to submit that the
period ending with 1876 marks a distinct
epoch in the evolution of these banks and
this calls for a theoretical underpinning or

permeated the highest echelons of the Imperial government. We may never discover
the many arguments concerning the future

a well formulated thesis applicable to the

total span of this period; the analysis of all
the relevant data for the period can either
substantiate it, or if not, suggest means to
explain deviations. A thesis has at least two

which is but to be expected. This is a

transparent indication how far concern
regarding the growing influence and power

of private British interests in India had

ced in the 1860s if we recount that the pro-

cess began in the closing years of the

previous century. An early and momentous
victory of these interests was in 1813-to
divest 'The United Company of MerchAnts
of England Trading to the East Indies' of
their monopoly of trade with India. The
Presidency Banks Act of 1876 may be viewed
as the denouement of all these forces and
developments. The thesis to be formulated
and discussed may thus be the transition of
the presidency banks from their original constitution as in the early 19th century to the

role of these banks that may have been urged

position reached in the 1870s to which this

upon the secretary of state for India in the

act but put the official seal. This did not

certainly mark an end to their growth-no.
Whether foreseen by some and so prepared
for it, or because of the entrepreneurial
qualities of their top management, these
banks prospered to unknown heights in the
following-quite difficult-decades. This

post-1857 years by members of his council,

the old 'India hands', and by powerful city
interests. In the early 1900s, in his first
published book (referred to earlier) Keynes
spoke of an important conclusion of his, viz,

that the business of financing Indian

trade, so far as it is carried out by banks withthe following volumes will record. Maybe the
author harboured some such design in his
their seat in London [besides much business
mind as is being suggested here for his last
of a semi-banking character transacted by
chapter, very fittingly named 'Epiloguefinancial and mercantile houses, some of

advantages-it provides a yardstick, a frame

of reference, to decide if specific pieces of
data and controversy are to be included and
duly considered, the manner of doing this,
and which of their nuances to emphasise,
having in view their contribution towards
developing the thesis; secondly, it lends the
treatment cogency, as well as a discernible

them of the first magnitude-in the footnotel is in the hands of a very small number
of banks ... in an exceedingly strong financial position. . ." (op cit, p 147). These banks
had a monopoly over the exchange business
of the secretary of state, directly, in remitting the home charges from India to
London, and, indirectly, in using the bullion

thrust.

and foreign exchange resources of India for

By way of illustration only, a possible

British's imperial interests when needed. The
thesis may be considered. These banks began
evolution of such financial, as also commertheir career with all the moral and material
cial, power groups must have greatly advan-

support of the-then state, having on their

side the entire weight of the administrative
and judicial machinery. The letter from the
secretary of state of May 6, 1875, already
referred to, stated in para 13: "Originally
they [i e, relations with the government] were
probably devised to provide banking facilities for the commerce of the country which
it could have been otherwise unable to procure". The three banks grew very differently,
with the Bank of Benoal clearly outpacing
the other two, and the Bank of Madras often
lost in the backwaters. Various untoward
developments began to surface a little later.
More than once in times of financial strain
the imperial government was prevented from
drawing on its balances with these banks.
The climax was the ignominious collapse of
the Bank of Bombay, and the alleged efforts
ocf some to hold the state responsible for this,

aot altogether unfounded as the author

Delimitation of Apex Banking in India'.

That design, however, get crowded out by
fragments of various other matters not buttressing the design, and not worthy of a
place in an epilogue (like, e g, Gilbarts' book
on commercial banking, role of khazanchees
and cash-keepers, and famines, which are
doubtless important, but in their appropriate
contexts). We close now with complimenting
the author once again for his stupendous
labours, and for narrating a complex story
in a largely untilled terrain so well.

Just Published!
INDIA'S TRADE WITH JAPAN: Constraints & Opportunities
A Study in Trade and Investment
Dr Abraham Joseph
A plea fora newtrading and manufacturing framework between the
two countries, supported by facts and figures, with prospects in tbe
21 st century.

248 pp 23 cm tables, charts Rs. 225/ECONOMIC HISTORY OF HYDERABAD STATE

V. Ramakrishna Reddy

informs us.

Fully covers the varied economic developments, the economic

The alignment of economic and political

power began to shift from the mid-1830s,

and more markedly from the mid-1850s.
Simultaneously, the authorities viewed with
increasing concern the growing economic,
and even some political, clout of the resi-

resources of the region vis-a-vis the actual development in the

background of the feudal jagirdari system.
824 pp 23 cm illus, maps Rs. 458/-

dent British industrial and commercial com-

munity. The manner in which the Bengal

Chamber of Commerce, for example, ofterL

r_r_~*

questioned the government on specific

economic and financial matters is revealing.

1222

Economic

and

Political

Weekly

June

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11,

1988