100 years of Imperial Bank of India

On 27 Jan 1921, the three Presidency Banks were merged into one bank and named the bank as Imperial Bank of India. The Imperial bank of India was nationalised and renamed as State Bank of India in 1955.

The Imperial Bank of India had a very interesting history of its own.

For a long time there was thinking of setting a State Bank to manage the central banking operations in India. The discussion veered from setting a new central bank or to merge the three Presidency Banks into one entity and give it central banking functions. The latter option was favored by none other than Lord Keynes who also suggested the merged entity be called Imperial Bank of India. Ironically, Keynes drew comparisons from Banque De France which served the dual function of commercial and central banking and not Bank of England.

Infact much before Keynes, a plan for merger was proposed by Dickenson in 1867 but was rejected by the Government over fears of one strong institution. Instead, the Government unified the Acts of the three banks in 1876.

Post – World War One the Government agreed to proposals for merging the three banks. The Bill to merge three Banks into Imperial Bank of India was introduced in the Indian Legislative Council on March 1, 1920 and was passed in September 1920.  The merger came into effect in January 1921 as mentioned above.

The Imperial Bank became a quasi central bank and also remained a commercial bank. Central banks broadly have two functions: Issuer of Currency and Banker to Banks/Government. IBI became banker to government and banks but the currency function remained with the Paper Currency Fund under the Government.  From RBI History:

In terms of an agreement signed between the Bank and the Secretary of State, which was for a period of ten years in the first instance, the bank was appointed as sole banker to Government. The Reserve Treasuries were abolished and all  Treasury balances were kept with the bank at its headquarters and at branches. The bank also managed the public debt of the Government of India. To an extent, the Imperial Bank of India also acted as banker to banks. Leading banks in India kept a major portion of their cash balances with it, though there was no such provision in the Statute; the Imperial Bank also granted accommodation to banks. The bank conducted clearing houses in the country and provided remittance facilities to banks and the public.

In view of the Imperial Bank’s position as sole banker to Government, Government exercised a certain amount of control over it. Of the sixteen members on the Central Board, ten were appointed by Government. These included two Managing Governors, four Governors, the Secretary of each of the three Local Boards and the Controller of the Currency. Government had also powers (i) to issue instructions to the bank on important financial matters, including safety of their funds, (ii) to compel the bank to furnish any information regarding its working, and (iii) to appoint auditors.

Given IBI was a commercial bank as well, it could only act as Banker to Banks selectively. There was long standing criticism that the Bank favored Europeans.

Amiya Bagchi’s account of history of SBI provides more nuanced ideas. While the Board was mainly British, the Act opened scrutiny of register by shareholders. The Indian Companies Act 1913 allowed this scrutiny but the Presidency Bank Acts was not amended to enable scrutiny. But other things remained unchanged. Of the  three Presidency banks, one in Bengal and Madras was mainly British where as Bombay one was more Indianised. As Bank of Bengal was the largest, the merged Imperial Bank resembled practices of Bank of Bengal.

The first shareholder meeting of IBI, Chairperson RM Watson Smyth mentioned that Indianisation of IBI staff was premature “since men of the right quality were not to be found in Bengal”. This was said despite Indians setting up several banks in the period!

As part of commercial banking, IBI was given a target of establishing 100 new branches in next 5 years. In all the 115 years of its existence, the 3 Presidency banks just had 60 branches that too in major cities. IBI achieved the 100 branch target much earlier partly benefiting from merged with Allied Bank of Simla. This was one of the first financial inclusion policies done by commercial banks.

In 1921, Imperial Bank had similar level of deposits of Rs 72.58 cr as 65 Indian joint stock banks (80.16 cr) and 17 exchange banks (75.2 cr). In 1934, when RBI was formed and IBI ceased to be a quasi centra bank, deposits had increased to Rs 81 cr. Again the deposit amount was similar to Indian JSBs which had Rs 81.88 cr and more than 17 exchange banks which had 71.4 cr.

The journey of Imperial Bank is that of merger of the three banks, transfer of quasi central bank functions to RBI and finally to being nationalised and renamed as SBI. In all it is a key player in the 215 plus years of the State Bank of India…





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