History of Foreign Banks in India
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International Journal of Advanced Research in Management (IJARM) Volume 7, Issue 2, May–Aug (2016), pp. 36–45, Article ID: IJARM_07_02_005 Available online at http://iaeme.com/Home/issue/IJARM?Volume=7&Issue=2 Journal Impact Factor (2016): 6.9172 (Calculated by GISI) www.jifactor.com ISSN Print: 0976 - 6324 and ISSN Online: 0976 - 6332 © IAEME Publication HISTORY OF FOREIGN BANKS IN INDIA T. VINILA Assistant Professor of Commerce Social Welfare Residential Govt Degree College (W) Chittoor, & Research Scholar of Andhra University, Visakhapatnam, India ABSTRACT In the earlier stages of establishment of foreign banks in India, their main business was financing of foreign trade. In fact they continued to have complete monopoly over this field till about the fifties. The evidence by various witnesses before the Indian Central Banking Enquiry Committee conclusively proved their hold over the foreign trade of India. Over and above these banks started competing recently with Indian Banks in financing of internal trade also. Manu Subedar’, in his Minority Report, Indian Central Banking Enquiry Committee, their main business is not the financing of foreign trade but internal trade of India. The operations of these banks are not confined to the financing of foreign trade. The deposits that they are able to collect in India is not very far in excess of what would be required if confined themselves to financing of foreign trade. Key words: Indian Central Banking Enquiry Committee, Indian Joint Stock Banks, Foreign Banks Cite this Article: T. Vinila, History of Foreign Banks In India. International Journal of Advanced Research in Management, 7(2), 2016, pp. 36–45. http://iaeme.com/Home/issue/IJARM?Volume=7&Issue=2 INTRODUCTION It is a well known fact that from the Earliest times, India possessed a system of indigenous banking. It will suffice in this connection to give the following, extract from “From the remote past to an Assured future” by W.E. Preston, the then Chief Manager of the Chartered Bank of India, Australia and China, and a member of the Royal Commission on Indian Currency and Finance, 1926, which is quoted on page 2 of Mr.B.T. Thakur’s book on “Organization of Indian Banking”(1) “It may be accepted that a system of Banking eminently suited to India’s then requirements was in force in that country many centuries before the science of banking became an accomplished fact in England. It is true that the methods of old in force in India were vastly different from the European ideas of banking today and partook more of money lending, money changing and later of the hundi business, nevertheless as applied to the conditions then existing in India, they admirably acted their part and must be recognized as having rendered immense services to the country as a whole, particularly when we keep in view the enormous agricultural interests of India,” Indeed money lending can be traced back to the Vedic period which is taken by some authorities to range from at least 2000 to 1400 B.C., but no evidence of its then being followed as a profession by section http://iaeme.com/Home/journal/IJARM 36 [email protected] History of Foreign Banks In India of the people or details about the terms on which money was lent, are available. It is from the 5th century B.C., that Indian literature supplied us with definite evidence of the details of money lending and remittance of money in cash or by credit instruments, and the Buddhist works and recent archeologically discoveries reveal the existence of associations or guilds carrying on various commercial and industrial activities. The Sresthis or bankers occupied prominent positions in these guilds. In each of the important trade centres of Buddhist period e.g. Champa, Rajagriha, Sravaste, Kausambi and Avanti, there lived many Sresthis of great influence. Their main function was to finance the traders for the ordinary purposes of their trades, the merchant adventurers who went out by sea to foreign countries or explorers, who traversed forests in search of valuable materials, and the kings in times of war and other financial stress. The Buddhist texts had references to the practice of lending money with or without interest. NEED FOR THE STUDY Though a number of studies have focused on the different aspects of foreign banks operations, this study is mainly on the origin and growth of foreign banks in India. OBJECTIVES OF THE STUDY The objectives of the proposed study are to • To study the historical setting of Foreign Banks • To study the origin and growth of Foreign banks. • To study the growth performance in terms of deposits and credit, METHODOLOGY The information is gathered from different books Reserve Bank of India Publications, Indian Bankers Association, Banking at a glance etc. FOREIGN BANKS-HISTORICAL SETTING Before independence, a number of foreign banks with head offices abroad had carried on business in India through branches. The most important of these were English banks established order Royal Chargers or English Acts. The bulk of India’s foreign trade being with or via England, it was natural that banks should be established in London to trans act exchange business with India. Until 1853, however, the East India Company, supported in prevent long the starting of such banks, with a single exception, for doing business in India, because the company and the houses were afraid that the banks would profit at their expense from their annual remittances for home expenditure and other exchange transactions. The company pointed out that Act 47 passed during the reign of George III had given it the power to incorporate such banks, and that the Act limited the Royal prerogative to grant characters to them. The matter was not decided until 1853, and the only English bank to obtain the Royal charter for operating in India until them was the Oriental Banking Corporation in 1842. The Presidency and Indian Joint Stock Banks, however, did not usually conduct exchange and remittance business between India and other countries as it was regarded risky and the business was transacted by the agency houses. By 1853 legal experts in England decided that Act 47 of George III empowered the company to incorporate banks merely on transacting general banking business within its territories, and that it did not limit the Royal prerogative to grant charters to banks for carrying on the business of exchange and remittances. Although the company did not accept this interpretation, it regarded it unsound that the monopoly of the exchange business should be enjoyed by the oriental Banking Corporation. It, therefore, suggested the incorporation of more banks, and so the Charterd Bank of India, Australia and china and the Chartered Bank of Asia (after wards the Mercantile Bank of India, London and China) were brought into http://iaeme.com/Home/journal/IJARM 37 [email protected] T. Vinila existence by Royal Charter in 1853. The failure of the agency house also made the formation of such banks necessary. The Oriental Bank failed in 1884: the Mercantile Bank had to abandon its Charter in 1893 and it was reorganized under the English Companies Act: so that the only English Bank that has continued to do business in India under a Royal charter in the Chartered Bank of India, Australia and China. The National Bank of India was farmed in 1863 under the name of the Calcutta Banking Corporation with its head office in Calcutta, but the name was altered to its present one in 1864, and its head office was transferred to London on 1886. Later on France, Germany, Holland, Portugal, Russia the U.S.A., and Japan followed England’s example, and opened branches of their banks, chiefly at the Indian Ports, there other English Bank also opened branches in India. The Indian branches of the Deutsch Bank also opened branches in India. The Indian branches of the Deutsch-Asiatische Bank and the Russo Asiatic Bank were closed on account of the war and have not been reopened. The Sumitomo Bank and the Imperial Bank of Persia closed their branch at Bombay in 1932 and 1934 respectively, on account of the economic depression. The Yokohama Specie Bank, the Mitsui Bank and the Bank of Taiwan were closed, when Japan went to war with great Britain in 1941. In 1944, the Banking business of Thomas Cook and Son was taken over by Grindlay and Company Limited. Out of the 15 exchange banks, 7 banks have their head offices in England: 2 in Holland 2 in the USA and one each in France, Portagar, China and Hong Kong.These exchange banks were divided into two groups (i) Banks doing a considerable portion of their business in India, i.e having 25 percent or more of their deposits in India and (ii) Banks which were merely agencies in India of large banks doing the a major portion of their business abroad, i.e having less than 25 percent of their deposits in India. There were 15 Exchange banks operating in Bombai (Mumbai), Madras (Chennai) and Calcutta (Kolkata) financing foreign trade in India. They were presented in Table 2.1. These banks had a total deposits Rs. 166.09 crores accounting for 14.3 percent of the total deposits mobilized by the banking system in India in 1947. Similar, the banks also accounted for a sizeable share of the total credit lent by the banks in India. The volume of Credit lent by them loan Rs. 77.82 crores constituting 14.6 percent of the total bank credit. It can be observed from the Table 2 that there were 15 Exchange banks operating in Bombay, Madras and Calcutta financing foreign trade.