26. The last group of Banks for discussion—since I have no precise data relating to the private and unincorporated bankers or money–lenders—consists of those numerous institutions registered as Banks under the Indian Companies Act, but with a capital insufficient or with activities too mixed for inclusion in the list of Indian Joint Stock Banks proper, dealt with above.

The available statistics (approximate) are as follows:—

March 31.Number of Banks.Paid–up Capital.
1900398£2,000,000
19055102,200,000
19065052,000,000
19075041,900,000
19084782,800,000
19094923,100,000
19104763,400,000

There are no statistics of their deposits. While the capital of these Banks has increased rather rapidly since 1907, the above figures show that it is not yet large.

Our interest in these Banks, however, arises not so much out of the banking business which they may possibly transact, as out of certain, almost Gilbertian, characteristics calculated to bring the name and profession of banking into derision or disrepute. These Banks have discovered that there is, or may be, a useful ambiguity in the public mind between nominal capital and paid–up capital, and that nothing is cheaper than to increase the former. When, therefore, a Bank is registered, its promoters may just as well put down as its nominal capital sums ranging from £100,000 to £1,000,000 as anything else. One comic opera Bank registered in Calcutta in 1910 put down £20,000,000, without having at the time of the last return any paid–up capital at all. Apart from this exceptional venture, the 38 Banks registered in 1910–11 had between them a nominal capital of £1,306,000 and a paid–up capital of £19,500. With enormous nominal capitals they combine high–sounding titles—the Bank of Asia, the East India Bank, the Hindustan Bank, the United Bank of Commerce, and so forth. Once established, their activities are not limited. One of these Banks has included in its operations coach–building and medical attendance.

27. Plainly these ventures are not to be taken too seriously. But the recent activity of their promoters has raised some discussion in India as to whether it would not be for the public good to restrain them by legislation. In this matter, as is the case in so many (her governors knowing no other model), the legislation of India has followed the lines of Great Britain’s. Just as in this country there is no special law relating to the incorporation of Banks, so in India Banks are registered under the ordinary Joint Stock Companies Act. As a Bill to amend this Act has been to the front for some time, discussion has naturally centred round the question whether this opportunity should not be taken of introducing some suitable restrictions relating specifically to Banks.[121] While I am inclined to think that it would be more convenient to deal with this matter in a separate Bill, the important point is that decided action of some kind should be taken with the least possible delay. The Upper Indian Chamber of Commerce, in reply to an inquiry from Government in 1910, answered, very wisely, as follows:—

The Committee feel very strongly that something more is needed (i.e., than in other Companies) in the case of Banks where the capital and confidence, not only of the shareholders but of the depositors, are involved. New Banks are springing up with alarming rapidity, with little share capital subscribed; these Banks are trading on the confidence of the depositor who is little versed in money matters but is attracted by the name “Bank” and wishes to earn interest on his savings.... The fear is that if one of these mushroom growths fails, others will follow, and the timid depositor, unable to discriminate between the sound and the unsound concerns, will make haste to get his money back from whatever Bank it is in, and his confidence in banking institutions thus rudely checked will take years to win back.

Various suggestions have been made as to what restrictions would be proper. It has been proposed that it should not be permitted to combine banking operations with other businesses; that the accounts of Banks should be regularly audited and the results published; that fairly detailed accounts[122] should be published in the local official Gazette; that all institutions calling themselves Banks should be required to publish certain specified particulars at the head of every advertisement; and that capital and reserves should bear a certain proportion to liabilities before dividends may be paid. The abuse of a great disproportion between nominal and paid–up capital could be cured by a stamp duty on registration proportioned to the nominal capital. Provisions for due publicity will probably lead in the long–run to the best results—though care must be taken that the form for publication of accounts is well suited to bring to the light what is most relevant. Regulations of other kinds are apt to have hampering results which cannot be easily foreseen. During the infancy of Indian banking, nevertheless, it will very likely be wise to have some precise rule as to the kind and amount of the reserves.

28. In conclusion, something must be said about proposals for a State Bank. This is a proper subject for inquiry by a Royal Commission. I am not prepared to discuss it here in detail.

The question is an old one. In 1836 “a large body of merchants interested in the East Indies” submitted to the Court of Directors of the East India Company a project for a “great Banking Establishment for British India.” Such a Bank, “confining its transactions strictly to Banking principles and business,” and “established by Act of Parliament and possessed of adequate capital, would, under judicious management and control, become an instrument of general good by facilitating the employment of a portion of the redundant capital of this country (England) for the general improvement of Indian commerce, giving stability to the monetary system of India, and preventing those occasional fluctuations to which it is at present subject, and also by affording the Company facilities and advantages in their future financial arrangements.” It was also to “facilitate the receipt of the revenue and its subsequent diffusion through the various channels of the public expenditure, furnish the remittance to Great Britain of the sums required there for the Home Charges, and enable the East India Company to act up to the instruction of the legislature by keeping their Government entirely aloof from that interference with the commerce of India which the present system of remittance involves.... At present the basis of the Bank of Bengal is too narrow for such a customer as the Government.” I quote this from the Account of the Presidency Banks by Mr. J. B. Brunyate, who remarks on its appropriateness to present conditions. From 1860 to 1876 the possibility of the Bank of Bengal’s developing into a “Bank of India” was constantly in the air, successive financial Members of Council being not unfriendly to the idea. In 1867 a specific proposal for the amalgamation of the three Presidency Banks was laid before the Government of India in a memorandum of complete grasp and mastery by Mr. Dickson, celebrated (in his own time) for pre–eminent ability as Secretary and Treasurer of the Bank of Bengal. The Viceroy’s minute was unfavourable. “I submit,” he wrote, “that it is not for the interest of a State that a great institution of the kind 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. And as regards the interests and convenience of the merchants of Bombay and Madras, surely it is only natural that they should prefer separate Banks for those important centres of commerce.” The Secretary of State’s sole contribution to the discussion—no need to name him, it is the eternal Secretary of State speaking, not a transient individual—was as follows:—