THE ECONOMIC WEEKLY January 12, 1957 Merger of Rajasthan Banks By A Banker 'THE Chief Minister of Rajasthan, ernments, it is surprising that they compelled by directives from Gov­ Shri Mohanlal Sukhadia invited have not appreciated their position ernment to place their funds to the a conference of the Chairmen and as State Associated Banks. utmost extent with the State Bank Directors of the three Rajasthan The conditions for being appointed of India and utilise the services of banks viz The Bank of Bikaner Agents of the Reserve Bank, are the State Bank of India even at Ltd, The Bank of Jaipur Ltd, and such that these banks could not have some sacrifice to themselves. Fur­ The Bank of Rajasthan Ltd, on accepted them had they considered ther, a State associated Bank is al­ 24th December. 1956. He himself the merger purely in the interest of ready functioning as a special type presided over the conference and also the people of Raiasthan; their ac­ of State owned Corporation, being moved before it a proposal for the ceptance could only be for other neither a registered organisation amalgamation of the three banks. considerations. Their main interest under the Indian Companies Act nor The first two banks apparently appears to be to get the agency of coming within the statutory juri­ agreed to the proposal, provided that the Reserve Bank so that they may sdiction of the Central Authority, the amalgamated bank is appointed enjoy all the prestige, privileges and enjoying almost extra-territorial as an Agent to the Reserve Bank and other benefits of the currency jurisdiction and functioning as a of India for the whole of Rajasthan chests, and be in a position to com­ super body vis-a-vis to other orga­ State and at other places also where pete unfairly with other commercial nisations in the country. .. .Not be­ the State Bank of India does not banks not only in Rajasthan but ing satisfied with all these advant­ have its branches but the amalga­ all over the country. ages open canvassing is done by the mated bank has. They think that State officials for and on behalf of if the Reserve Bank is not agreeable In this connection, it may be re­ this institution. to this condition, the merger will be called that when the Finance Mini­ "We may be allowed to point out useless. The Bank of Rajasthan stry of the Government of India that nationalisation of State asso­ has, not yet committed itself and disclosed its Intention of maintaining the separate entity of nationalised ciated banks, their running as se­ has asked for time for consulting parate institutions and opening its shareholders. State associated banks, the Indian Banks Association opposed it in the many branches of them in different All the three banks had been following terms: parts of the country, particularly working as bankers and treasurers in centres which have already offices to the Government of Rajasthan "This is contrary to the statement of other banks, will increase the since 1949. Very recently, the Go­ which was made some time ago by unfair and unhealthy competition, vernment of Rajasthan have ap­ the previous Finance Minister in the which they are already offering to pointed the Reserve Bank of India Lok Sabha to the effect that the commercial joint-stock banks, and as their sole banker. Hereafter, State associated bank would be will progressively worsen the posi­ the three banks will remain only merged with the State Bank of tion of the latter banks. This will treasurers of the Rajasthan Govern­ India. Further, Mr Rasiklal Parikh. make it very difficult for the latter Chief Minister of Saurashtra Gov­ ment. The cash work of Govern­ banks to give their competitive ser­ ernment, is reported in a section of ment treasuries has been allowed vices to industry and commerce as the press to have stated that the for the time being, to be continued well as adequate support to the loan State Bank of Saurashtra would with them but they will not be programmes of the Union and State continue to function as a separate agents to the Reserve Bank of India Governments and to fulfill their pro­ institution, would open a number of and will not be entrusted with Go­ per role in the carrying out of the branches in different parts of the vernment currency chests. To Second Five Year Plan. As Govern­ forthcoming composite State of solve this problem permanently, and ment has decided to allow the joint- Bombay and would extend very without prejudicing the other banks, stock banks to continue to operate vigorously the scale and sphere of as such in the private sector, not the Government of India, following its operations. the recommendations of the Rural only justice, but also national in­ Credit Survey Committee, wanted "We beg to say that these reports terest demand that they should be to nationalise the State associated have greatly perturbed member allowed to function fairly and banks (including the above mention­ banks of our Association, as such a smoothly and should not be subject­ ed three banks) and to amalgamate development will produce very harm­ ed to uneconomic competition by a them with the State Bank of India. ful repercussions on the commercial number of State banks, which enjoy But this proposal was opposed tooth joint stock banks. The State Bank special privileges, which have already and nail particularly by these of India is already offering unfair a number of branches in different banks, which in fact had been and unhealthy competition to the parts of the country and which will established on the initiative of their commercial joint stock banks by establish new branches all over the former respective State Governments giving advances to some large in­ country. We, therefore, submit that who participated in their share dustrial concerns at uneconomic if the State associated banks must capital and extended to them a rates. It can do so only on account be nationalised, they should be merg­ number of facilities like free pre- of its privileged position and its ed with the State Bank of India and mises and free cash balances. For possession of funds carrying little that great care should be taken to one bank, a magnificient building or no burden of interest. It is re­ see that the State Bank of India was constructed at a cost of over ported that State institutions and does not offer unfair and unecono­ Rs 3 lakhs and handed over to it semi-State organisations like Local mic competition to the joint stock for its business purposes. Inspite of Bodies, Municipalities, etc, are not banks on account of its privileged such help and support of the Gov­ only persuaded but also indirectly position". 43 January 12, 1957 THE ECONOMIC WEEKLY

The above protest applies equally scheduled Bank in existence, the develop and stabilise the whole to the case of the proposed amalga­ Committee recommends the trea­ banking structure and make possible mated bank also, if it is appointed sury office itself should be convert­ the mobilisation of the savings of agent of the Reserve Bank and is ed into Pay Office of the Imperial the people of all sections. If discri­ allowed to continue as a separate Bank of India." minatory treatment between banks entity. In selecting scheduled banks for of equal soundness exists, the desired Further, by nationalising the Im­ the purpose, stress should be laid on objective cannot be achieved. perial Bank of India and the Hydera- the soundness of the banks, their It is, therefore, hoped that before mad State Bank, the Government experience and efficiency and not on agreeing to the above mentioned and the Parliament of the country the size only. The recent discus­ condition, the Reserve Bank of have adopted a policy that the Go­ sions over the affairs of the Hydera­ India will consider all the aspects of vernment cash work with currency bad State Bank on the floor of the the matter in the right perspective. chest should not be entrusted to Parliament confirm that it is not The amalgamation of Rajasthan private banks as it jeopardises the the size which makes a bank's busi­ banks is quite a separate matter and working of other banks. ness safe, but the efficiency of the question of appointing the ama­ Under the circumstances, it is to management. Adoption of this lgamated bank as agent of the Re­ be seen whether the Reserve Bank policy would mean extention of serve Bank has no relation with the will agree to the above mentioned equal treatment by Government to merits or demerits of the proposed condition of appointing the amalga­ all the good banks. It will help to merger itself. mated bank as its agent without nationalising It. If it agrees, it will be considered (i) A substantial change in the Government as regards the appointment of agents to the Reserve Bank of India i e any bank can be appointed as the agent of the former bank if it so chooses. (ii) An action against the opinion of the experts in the line or a proof of the unsoundness of the reasoning advanced for nationalising the Imperi­ al Bank. (iii) A step to further encourage an unhealthy and undesirable competition in the field of banking as a whole. In case, there is a real change of policy as regards entrusting cash work of Government treasuries with currency chests to banks other than a nationalised bank with a view to concerting all the Government tre­ asuries into Banking Treasuries, It is well and good. But Government should then be broad minded enough to put its confidence in all the good banks of the country, irrespective of their size. In this connection, the sincere advice of the Estimate Com­ mittee (appointed by the Parliament in the year 1954) given below should be followed. The Committee sug­ gested a practical, convenient and suitable solution of the problem. ''The present system of treasuries should be abolished. The present function should be taken over by the branches of the Imperial Bank of India (now State Bank of India) or where its branches do not function, by a branch of some other Scheduled Bank, in consultation with the Reserve Bank. Where there is no branch of Imperial Bank of India or any 44