As some recompense for these restrictions, the Presidency Banks have been allowed to hold a portion of the Government balances without payment of interest. The use of these balances was first granted them in 1862 as compensation for their being deprived of the right of note issue. Up to 1876 the Presidency Banks held, subject to certain conditions, the whole of the Government balances which would have been “paid in ordinary course into Government Treasuries at the places where the head offices and branch offices of the Banks are established.” But on more than one occasion the Banks made difficulties when the Government desired to withdraw large sums at short notice. In 1876, therefore, the Reserve Treasuries were established, and since that time only a portion of the balances has been placed with the Banks.[95]
8. The present constitution of the Presidency Banks is to be explained, therefore, by their long and complicated history. The restrictions under which they work have in the past contributed, beyond doubt, to their stability. The Bank of Bengal has seen the rise and fall of numerous powerful rivals. Only by virtue of its being absolutely precluded by law from the more speculative forms of business, has this Bank survived the half–dozen or more violent crises by which the Indian financial system has been assailed in the last hundred years. And, in spite of the restrictions, the Presidency Banks have shown great vitality and a power of expansion hardly less than that of the Exchange Banks in the happier circumstances of the last decade. But their constitutions are exceedingly out of date at the present time. The considerations which originally gave rise to them are no longer operative;—since the introduction of the Gold Standard, for example, dealing in foreign exchange has ceased to be a highly speculative business. And they do not play as useful a part in the Indian Financial System, as with a different history behind them they might do.
9. The principal statistics of the three Presidency Banks are as follows[96]:—
| Dec. 31. | Capital, Reserve, and Rest. | Public Deposits. | Private Deposits. | Cash. |
| 1870 | £2,412,000 | £3,620,000 | £4,264,000 | £6,646,000 |
| 1880 | 2,702,000 | 1,941,000 | 5,662,000 | 4,943,000 |
| 1890 | 2,984,000 | 2,395,000 | 9,842,000(a) | 8,645,000(a) |
| 1895 | 3,267,000 | 2,218,000 | 8,747,000 | 5,131,000 |
| 1900 | 3,731,000 | 1,870,000 | 8,588,000 | 3,363,000 |
| 1905 | 4,156,000 | 2,078,000 | 14,842,000 | 5,487,000 |
| 1906 | 4,266,000 | 2,052,000 | 18,301,000 | 7,300,000 |
| 1907 | 4,366,000 | 2,239,000 | 18,742,000 | 6,350,000 |
| 1908 | 4,461,000 | 2,172,000 | 19,077,000 | 6,925,000 |
| 1909 | 4,521,000 | 2,132,000 | 21,767,000 | 7,770,000 |
| 1910 | 4,607,000 | 2,824,000 | 21,563,000 | 7,567,000 |
| 1911(b) | 4,650,000 | 2,640,000 | 23,250,000 | 9,430,000 |
| 1912(b) | 4,900,000 | 2,530,000 | 24,000,000 | 8,070,000 |
(a) An exceptional year, due to the excessive abundance of money.
(b) The figures for 1911 and 1912 are not taken from the same returns as the rest, and are not quite strictly comparable with them in one or two details.
These figures do not require much comment. The growth of private deposits since 1900 (rising from £8,500,000 in 1900 to £15,000,000 in 1905 and £24,000,000 in 1912) is very noticeable. This has been accompanied by a fair increase of Capital and Reserve and of Cash. The Presidency Banks publish weekly statements of their affairs, and it is scarcely possible, therefore, that they should “window–dress” their balance sheets. The figures given above refer to December 31, which falls in the busy season; and the proportion of cash held affords no ground of complaint. It should be said, however, that, while the public deposits at the head offices are stable and not liable to sudden reduction, the public deposits at the branch offices stand in a different position and are held literally at call. It is necessary for the Banks to hold a considerable proportion of these in cash at the branches in question, and this arrangement makes the cash held against the private deposits appear in a somewhat more favourable light than it should. It must also be remembered that the Presidency Banks are to a certain extent Bankers’ Banks, and that the other Indian Banks reckon their balances with the Presidency Banks (included in the private deposits) as part of their cash.
10. The two provisions of the Presidency Banks Act which have proved fundamental in their effect on the development of the Indian Banking System are those which prohibit the Presidency Banks from dealing in foreign exchange and from raising funds in London. To transact these two classes of business—though once established they have not limited their transactions to them—a class of Banks has arisen known as the Exchange Banks. Officially a Bank is an Exchange Bank if its head office is located elsewhere than in India; but Banks in this category coincide very nearly with Banks doing the class of business described above. The Indian Specie Bank is the only Indian Joint Stock Bank having a branch office in London; but this is probably in connexion with its business in silver and pearls, and this Bank does not transact any considerable volume of business of the kind undertaken by Exchange Banks.
11. The Exchange Banks proper fall into two groups—those doing a considerable proportion of their total business in India, and those which are no more than agencies of large banking corporations doing business all over Asia. This second group includes the Comptoir National d’Escompte de Paris, the Yokohama Specie Bank, the Deutsch–Asiatische Bank, the International Banking Corporation, and the Russo–Asiatic Bank. These Banks represent in India French, Japanese, German, American, and Russian interests respectively. No figures are published of the proportion of their total business which these Banks transact in India. But I should be surprised if, even in the case of the Yokohama Specie Bank, it would amount to more than five to ten per cent; and in the case of some of them it must be much less than this. In what follows, therefore, I shall leave these five Banks out of account.