The Evolution of the State
Bank of India: The Roots 1806-1876
THIS is an important addition to the history of institutions in India. Without being hagiographic, it is true to its subject. Without being pedantic, it manages to be insightful and informative. Without being boring, it is detailed. Without being jargon-ridden, it manages to locate the history of the State Bank of India within the local times and social climes from whence it emerged.
The first modern bank for the East India Company was formed in 1806 in Calcutta and began to issue notes for the East India Company and also take in deposits. Two-and-a-half years later, the Bank of Calcutta was renamed as the Bank of Bengal. Later, other presidency banks came into existence. The Bank of Bombay, founded in 1840, collapsed in 1867. It restarted in 1868 with the appellation "New", which was dropped in 1876.
The Bank of Madras, founded in 1843, along with the Bank of Bengal, was brought under a single law with the creation of the Presidency Banks’ Act of 1876. All three were merged together to form the Imperial Bank of India in 1921. It was this Imperial Bank that was renamed the State Bank of India in 1955.
From their inception, these banks were formed as instruments of statecraft and not just managers of government finances. They took their inspiration from the writings of Adam Smith and the new political economy that was then triumphant in England. Ideas of banking and finance from the Indian past played no role whatsoever in their functioning.
The banks of the East India Company were truer to the ideas of modern political economy than was the Bank of England, which was primarily a private body that managed the finances of the government. In contrast, the government was the primary owner of presidency banks.
The early directors of the bank were well aware of the unique purpose of their institution and its importance in history. As early as 1837, they began to insist that a history of the bank be written. Towards that end, the banks took the task of internal documentation of their decision-making process very seriously. Consequently, detailed records were preserved with great assiduity, making it possible for a detailed history to be written at a later date.
Bagchi makes full use of this archival material and more to trace the logic for the creation of the presidency banks and the manner in which they functioned. The three presidency banks and their ups and downs are treated separately. The interested reader will find enough details here to whet curiosity about the manner in which the Bank of Bengal came in conflict with the government when it sought credit to fund the suppression of the mutiny of 1857, which the directors of the bank resisted. The government ominously threatened that it would not come to help the bank should it be involved in any difficulty. The directors were left to mull what the difficulty might be while all of North India was rift by the mutiny.
The Bank of Bombay, Bagchi reports, was quite lax in adhering to good banking practice. While the Bank of Bengal was able to arrest and punish many rich and famous people of Bengal when they tried to embezzle bank money, the Bank of Bombay merrily allowed its employees and directors to siphon off bank funds illegally. Through the early 1860s, the bank actively supported a share mania in Western India.
Till 1860, five joint stock companies were registered in Bombay presidency with a paid-up capital of Rs 34.6 lakh. In the next three years, their number jumped to 51 and the paid-up capital to Rs 4.1 crore. Most of them were financial companies supported by the bank, but doing little else.
Very soon, the Bank of Bombay collapsed, with the government actively conniving with the bank’s wrongdoing. Many managers of the bank were censured for their unprofessional conduct, but no condign punishment was meted out to anyone. Bagchi underscores this history with a parallel narrative on the changing face of finances of the Government of India, thereby increasing the importance of this book.