A banyan tree framed in golden hues

Sociology and economics together provide a fascinating backdrop for a historical evaluation of how economies have developed, prospered, encountered problems, surmounted them and then moved ahead. With the benefit of hindsight we can authoritatively state that in the long run the Cassandras and the Nouriel Roubinis are inevitably wrong. The reasons could be in our DNA as Max Weber tries to argue in his fabled tome on the “Protestant work ethic and the rise of Capitalism”.

Back home, one of the pillars of our financial system and by now, a proxy for the Indian economy - State Bank of India - is an interesting prospect for a study of how Indian banking has matured to provide the ballast for a large ambitious economy on the rise. In 1806, when the Bank of Bengal, one of the forerunners to SBI was constituted there were no international standards - neither BIS nor Basel.

Yet, as economic-historian Prof Amiya Kumar Bagchi has documented in his “History of SBI” (Volumes 1,2 and 3) series, the foundation laid was strong and durable. From a sociological angle, it was moored on Scottish banking scruples, which animated the Presidency banks.

Their successor, SBI and many of its peers have combined now to build India’s banking sector, one of the most durable in the world, catering to one-fifth of humanity. We generally do not see or bother about the foundation till something visible happens to the structure. But serious students of banking and finance do hark back to history to understand the unfoldement of such institutions of national importance in India.

Abhik Ray who was involved in extensively documenting the story of SBI with AK Bagchi has now authored a lighter running commentary on the bank’s history focusing more on governance norms. Titled 'Indelible Memories: The pride of SBI', it is a delightful read for any student of Indian banking to understand how India’s largest bank developed. The foreword to this special volume is by SBI’s current Chairman, Dinesh Khara

By now, it is common knowledge that the three Presidency Banks of Bengal, Madras and Bombay in which, quite notably, the Government had only a minority stake, were the forerunners of the Imperial Bank of India (since 1921) and thence SBI (July 1, 1955).

Ray begins with the values which suffused the Charter of the three original constituent banks to underscore the basic principles of these banks. Sample these norms from the Charter governing them, drawn up in the 1850s “The quantum of stocks to be held by individuals was limited to Rs 1 lakh to prevent the banks from being monopolised in ownership. A cash reserve of at least one-third of the outstanding liabilities payable on demand was prescribed. And total liabilities could not exceed the capital”. Automatically, the capital limited/adequated the assets too.

Banking archives also prove that branches those days calculated Return on Capital Employed (ROCE). For instance, the Calicut branch of Bank of Madras in 1871 assessed its ROCE for the period 1863-71 at 17%! It is this doctrinaire approach that has stood SBI and by extension, Indian banking in good stead.

The Indianisation of the Bank started, writes Ray, with a strong push by JRD Tata who was a member of the Local Board of the Imperial Bank. Tata’s tirade and pressure from critical media and trade bodies forced the bank to recruit Indian probationary assistants in 1943.

One 21-year-old who joined then rose to become SBI’s first non-civil-servant Chairman in 1969 - R K Talwar. And when the modern SBI was constituted, the first Chairman was Dr. John Mathai, who was the Finance Minister of India before that. (Dr Varghese Kurien, the father of India’s White Revolution was Dr Mathai’s nephew)

As a home-spun banking icon, SBI has time-tested institutional relevance. Banking is a risky business and the slope is more often slippery. As Adam Smith remarked perspicaciously long ago: “ Though the principles of the banking trade may appear somewhat abstruse, the practice is capable of being reduced to strict rules. To depart on any occasion from these rules, in consequence of some flattering speculation of extraordinary gain, is almost always extremely dangerous, and frequently fatal to the banking company which attempts it”.

At a time when the bases of so many businesses are being upended by creative disruptions, no entity can take its future for granted. But its 200-plus years of history and governance, which Abhik Ray’s précis of a book captures concisely, offers hope that SBI will carry forward its gold standards in macro banking, framing it against its banyan-tree-like heritage.