Remaining 5 State Banks to merge with SBI and with it merges their interesting histories..

This bit of news has been doing rounds for a while. The govt is looking to merge the 5 state banks with the parent SBI. There were 7 of such state banks and two of them i.e. State Bank of Saurashtra and State Bank of Indore already got merged in 2008 and 2010.

Indian banking is such a goldmine for historic banking research. We have a bit of everything here. But there is hardly any concern for these matters.

Take this case of State Banks which were floated by the Maharajas of the respective states.  There is a lot of interest in trying to document the linkages between kings and banks particularly in Europe. But it is difficult as we are talking about a very old period where documents etc were difficult to find and figure.

And here we have about seven of these banks coming up in the beginning of 20th century. Most of them formed as a central bank cum commericial bank to foster banking practices in the region. The question to ask is why as late as 20th century> These kingdoms have been there for a long time , how were things financed before these banks?  Most likely the reasons are going to be that these kingdoms were financed by so called indigenous bankers who lost their powers due to emergence of joint stock banking.  The scale of indigenous banking was also too small to foster any kind of development in the spirit of Gereschenkron.

This experiment of a maharaja setting up a bank  started from Bank of Baroda in 1908. Thankfully we know something about this history via the brilliant book by Prof Dwijendra Triapthi. Then there is the Baroda Banking Inquiry Committee report (1930) which also discusses about the bank. Basically the idea was same. The State wanted to develop its industries and the indigenous banks were not well equipped (funded) to manage this. So, a bank was floated on the likes of Bombay based joint stock banks. It moved away from Maharaja shadow and moved onto become a private bank. So it is not part of State Bank system.

Then came State Bank of Mysore in 1913 and other six banks. This blog dug out some info about these seven banks:

  • State Bank of Mysore (1913): Found under the aegis of Sri Krishnaraja Wodeyar IV ably assisted by Sir Mokshagundam Visvesvaraya. It was called as Bank of Mysore. The idea was to bank act as a catalyst in Mysore’s industrial power. Became part of SBI in 1959 and renamed as State Bank of Mysore.
  • State Bank of Patiala (1917):  Bhupinder Singh, Maharaja of erstwhile Patiala state formed it as Patiala State Bank. The bank was setup fostering growth of agriculture, trade and industry. Started with one branch at Chowk Fort, Patiala. The formation of the Patiala and East Punjab States Union in 1948 led to the bank being reorganized and brought under the control of the RBI. It was renamed as Bank of Patiala. IN 1960, it became a subsidiary of SBI and was renamed State Bank of Patiala.
  • State Bank of Indore (1920). Formed as Bank of Indore by Tukojirao Holker-III under a special charter. The state of Indore awarded the Bank a monopoly for 10 years, granted it certain concessions and subscribed to the Bank’s share capital. Renamed as State Bank of Indore on becoming a subsidiary of SBI in 1960. It acquired two banks in 1960s –  Bank of Dewas in 1962 and Dewas Senior Bank in 1965. Already merged with SBI in 2010.
  • State Bank of Hyderabad (1941): Formed by Osman Ali Khan, Asaf Jah VII (Last Nizam) under the name Hyderabad State Bank. The Bank started with the unique distinction of being the central bank of the erstwhile State of Hyderabad, covering present-day Telangana region of Andhra Pradesh, Hyderabad-Karnataka of Karnataka and Marathwada of Maharashtra, to manage its currency – Osmania Sikka and public debt apart from the functions of commercial banking. Formed under Hyderabad State Bank Act, 1941, it had its first branch at Gunfoundry, Hyderabad on 5th April, 1942.In 1953, the Bank took over the assets and liabilities of the Hyderabad Mercantile Bank Ltd. In the same year, the Bank started conducting Government and Treasury business as agent of Reserve Bank of India.  In 1956, RBI took over the bank as its first subsidiary and called it State Bank of Hyderabad. IN 1959, it became a subsidiary of SBI.
  • State Bank of Travancore (1945): The bank was formed by the Dewan Sir. C.P.Ramaswamy Iyer . But bank desisted his contribution due to his dictatorial rule. So the bank prefers to give credit to Maharaja of Travancore for founding the bank, though the Raja had little to do with the founding. The bank took over 9 banks in 1960s due to large bank failures in Kerala- Travancore Forward Bank Limited, Kottayam Orient Bank Limited, The Bank of New India Limited, The Vasudeva Vilasom Bank Limited, The Cochin Nair Bank Limited, The Latin Christian Bank Limited, The Champkulam Catholic Bank Limited, The Bank of Alwaye Limited, and The Chaldean Syrian Bank Limited. Became part of SBI in 1959.
  • State Bank of Saurashtra (1950): This one has an interestinh history. In 1902, Bhavnagar Darbar Savings Bank was established in Bhavnagar by the Maharaja, Sir Bhavsinghji Takhtsinhji Gohil and Sir Prabhashankar Pattani, the later Diwan. In 1950 this Bhavnagar Darbar Bank merged with four other Durbar banks – Rajkot State Bank, Porbandar State Bank, Palitana Darbar Bank and Vadia state bank. These five together were renamed as SBS under Saurashtra state Bank (SBS) (Amalgamation) Ordinance The bank was created to encourage the habits of thrift amongst the darbari servants and to provide a safe place for people’s investments.  Already merged with SBI in 2008.
  • State Bank of Bikaner and Jaipur (1963) Bank of Bikaner formed by Maharaja Ganga Singh of Bikaner in 1944. The Government of Jaipur invited industrialist Ramnath Anandilal Podar to organise Bank of Japiur in 1943. Both made members of State Bank of India in 1960 and merged as SBBJ in 1963   .  It took over Govind Bank in 1963

Basic stuff. Nothing deep. It will be great to know more about these state banks.

The story of State Bank of Hyderabad is covered a bit in RBI History as well. It is really fascinating as Hyderabad wanted to be a part of Pakistan. The Nizam did things which most rulers/politicians end up doing- messing up things :-)..

The Hyderabad currency floated freely in India till 1947 partition. Likewise Indian Rupee worked fine in Hyderabad.  Post 1947, the Nizam said transactions in Hyderabad will only be settled in Sicca. All hells broke as it could not impose capital controls leading to capital flight and complete chaos:

On December 21, 1947, however, the Nizam’s Government promulgated an Ordinance (effective December 22) in terms of which all cash receipts and payments in respect of goods sold, property conveyed or services rendered in Hyderabad were to be made only in the currency of the State, viz., the Hali Sicca currency. The Ordinance did  not affect the position of banks in respect of accounts opened in Indian rupees and also did not restrict the free transfer of funds for settlement of trade and other liabilities in Indian currency outside the State.

The promulgation of the Ordinance was followed up by the institution of certain new arrangements which became operative from February 27, 1948. In terms of these arrangements, there was to be no restriction on the withdrawal of funds in cash from accounts maintained with banks in Indian currency and on the exchange of Hali Sicca currency into the Indian currency, when the amounts exchanged were paid into the credit of accounts in Indian currency. This arrangement helped flight of capital from Hyderabad to India; it appeared that some funds were transferred to Pakistan also. As a result of these developments, the Bank received urgent requests from the Hyderabad branch of the Imperial Bank to replenish the currency chest at Hyderabad.

The requests were scrutinised and supplies were made on a rationed basis under either the general or specific authority of the Government of India. The Bank considered the question of continuance or otherwise of the currency chest in Hyderabad and since it was not under an obligation either under the Reserve Bank Act or under the agreement with the Imperial Bank to maintain chests at places outside British India, it was decided on June 24, 1948, with Government’s concurrence, to abolish the chests at Hyderabad and Secunderabad. Remittance facilities between India and Hyderabad were also suspended.

Following the ‘successful conclusion’ of the police action in September 1948, the currency chests were re-established and remittance facilities resumed. The restrictions imposed on the use in Hyderabad of Indian currency were removed. A programme for the withdrawal of Hyderabad currency and its replacement by Indian currency was drawn up by the Government of India in consultation with the Bank.

In terms of the plan, the Hyderabad Government issued, on January 25, 1950, the Indian Currency (Legal Tender) Regulation, 1359 Fasli, in terms of which, effective January 26, 1950, the date on which Hyderabad acceded to the Indian Union, all coins, bank notes and currency notes which were legal tender in India became legal tender in the State of Hyderabad too. The Hali Sicca currency circulating in Hyderabad State also continued to be legal tender; arrangements were made for its conversion into India notes and coin at the rate of Hali Sicca Rs. 116-10-8 for India Rs. 100. Effective April 1, 1951, the Indian Coinage Act, 1906 and the Currency Ordinance 1940 were extended to the Hyderabad State under the Part B States (Laws) Act, 1951, and the corresponding State laws (the Hyderabad Currency Ordinance and the Hyderabad Currency Act) were repealed. With effect from April 1, 1955, Hali Sicca currency ceased to be legal tender. 

On January 26, 1950, the circulation of Hali Sicca currency (notes, rupee coin and small coin) amounted approximately to Hali Sicca Rs. 48 crores or India Rs. 41 crores. With the progressive replacement of Hali Sicca currency by Indian currency as from that date, the circulation of Hali Sicca currency steadily declined and stood at Hali Sicca Rs. 6.4 crores (or India Rs. 5.5 crores) at the end of March 1955.

So similar to stories of countries implementing dollarisation in later years. It is also a great case on how currency/monetary unions is formed. We just pick examples of US for building their monetary union but there is no discussion on how India managed it..

Anyways coming back to these State Banks. Need to know a lot more before all this is lost.

One Response to “Remaining 5 State Banks to merge with SBI and with it merges their interesting histories..”

  1. shruti bondal Says:

    How do we contact you?

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