Plus ça Change

Random House India

Pages: 552

price: Rs 599

Its hard to believe that the initial issue of shares of the Reserve Bank of India (RBI) to the public was oversubscribed by 100 per cent,or that HDFCs initial public offering devolved with the shares trading below par. Or that Deepak Satwalekar,who became managing director of the home loan major in 1993,was interviewed by Deepak Parekh in a taxi and in the waiting room of the chairman of Central Bank of India. Or that Tisco (now Tata Steel) was once in dire financial straits and was refused additional funds by Bank of Bombay. These and other numerous anecdotes,trivia,corporate and personal rivalries,boardoom battles and conflicts between bankers and civil servants make Bakhtiyar K Dadabhoys Barons of Banking: Glimpses of Indian Banking History an enjoyable read.

While banking today is,of course,very different from what it was in those years,fundamentally little seems to have changed. So if theres concern today on speculative bubbles in real estate,its because bankers must remember how the first joint-stock banks,which mushroomed between 1863 and 1865 during the cotton trade boom,all collapsed in a heap when the bubble in land prices burst. More than 20 banks failed between 1918 and 1921 and the number that went bust between 1922 and 1936 was 373,so its no wonder the RBI is wary about handing out licences.

There seems to have been as much rivalry between peers as there is today; when Central Bank faced a run in 1913,Bank of India tried to stop the wealthy Cowasji Jehangir from helping the bank. And the constant spats between Osborne Smith,the first RBI governor,and civil servants Sir James Grigg and Sir James Taylor,are reminiscent of the recent cold war between North Block and Mint Road. Dadabhoys book is more than a mere glimpse its a detailed account of the evolution of Indias financial sector.

The story of how the countrys central bank,the Reserve Bank of India,was set up could be a book in itself. While John Maynard Keynes had envisaged the creation of a central bank through the amalgamation of the three Presidency Banks into the Imperial Bank of India,that didnt materialise. Other models were worked on but the disagreement between the government,which wanted a shareholders bank,and the legislators who favoured state ownership,delayed the bank for years. Finally,the Governor General gave his assent to the Reserve Bank Bill (1933) only in March 1934. The share capital was issued at par in the following year and the issue was oversubscribed by nearly Rs 5 crore or nearly 100 per cent almost the entire capital was allotted to the public.

Probably the most fascinating personality profiled,the erudite CD Deshmukh,the first Indian governor of the RBI,has observed how the delays hurt India. The country might not have been forced into an unfavourable exchange rate had the RBI come into existence earlier. Others too were unhappy with the exchange rate,but possibly none more than Purshotamdas Thakurdas,who felt the rupee ratio was unfair and waged a war fighting a formidable combination of British interests,entrenched behind a powerful group of bureaucrats and businessmen.

Purshotamdass transformation from a cotton trader to a financial expert is an inspiring story he wasnt just a colossal figure in the financial sector,he also wielded enormous influence in the corporate space and was involved in nearly every important economic event of the time. Nicknamed the corporate octopus by Frank Moraes because he was associated with over 50 companies as chairman or director,Purshotamdas,together with BM Birla,was instrumental in getting CD Deshmukh appointed RBI governor.

The innovative Sir Sorabji Pochkhanawala,who set up Central Bank and to whom we owe the savings bank account,the cheque book,rupee travellers cheques,safe deposit vaults and the Central Fixed and Flexible Trust Company a precursor to the Unit Trust of India was another. Theres much to be learnt from how Pochkhanawala staved off a run on the bank,and how he amalgamated Tata Industrial Bank and started managing Union Bank.

One must also marvel at the vision of State Bank of India chairman RK Talwar who,despite never having worked in a branch,understood the problems of a branch manager better than most of his peers. The brief he gave IIM Ahmedabad when he approached it for advice on reorganising the bank couldnt have been more succinct: I have lost my branch manager. Please help me find him. The man who pioneered project finance through an industrial development bank with private ownership ICICI was,of course,AD Shroff,among the earliest exponents of free enterprise,who was among those that blueprinted the Bombay Plan in 1944. If only his ideas had been heeded earlier (they were converted into policy only in the 1990s) India might not have been the capital-starved nation it is today.