Fifty years ago | January 8, 1968 Archives

Changes in bank boards may affect deposits

In anticipation of Parliament adopting legislation in its next session for the so-called social control of banks, most commercial banks have been making changes at the top and in their boards of directors. This follows Mr. Morarji Desai’s advice to them many months ago that the banks need not await the passage of the legislation for making changes in their boards. Wherever bank chairmen were industrialists they have resigned and in most cases the General Managers of the banks have been elevated to the posts of Chairmen in consultation with the Union Finance Ministry. Industrialists have also resigned from the boards of major banks and these have been reconstituted with representatives of the co-operatives, small-scale industries, agriculture, and professional men like accountants, etc. It is emphasised that how the new boards will function depends on how their members look upon their new jobs. If they feel that they are there merely to obtain the funds that the former managements were believed to have denied them for their particular sector, it may be difficult to work the banks on strictly commercial lines. The new directors will have to bear in mind that the soundness and financial integrity of the bank as a whole comes above the sectional interests to which they owe their presence on the boards primarily. While the removal of industrialists from bank boards is in consonance with the aims of social control of banks as propounded by the Congress Party and the Government, how this reform will work in practice, will not be known for some time. While industrialists, as board members, may have benefited the firms in which they are interested with the bank advances, they also kept crores of rupees belonging to their firms as deposits with the bank. Whether they will continue to do so on the same scale or change them to other banks which they believe is more accommodative to them in their business remains to be seen. It is only after some time that the effect of the proposed changes will be reflected in the deposit position of the major scheduled banks. The volume of deposits in the banking system as a whole would not be significantly altered but within this total it is possible that some banks may lose substantial deposits in favour of others, depending upon the judgment of their erstwhile directors. It is well known in the history of Indian joint stock banking that whenever there has been a sudden pressure on the liquid funds of a bank, its industrialist-Directors have been able to mobilise the necessary funds by using their standing and wide contacts in the business world. Inter-Bank call money has been arranged without difficulty under an informal system which does not depend on any security for obtaining funds beyond the word of standing of the industrialist concerned. Sometimes in the past a run on the bank has been warded off by the ability of these men to meet depositors’ obligations at short notice and public confidence in the bank has been restored. In similar situations in future it is not certain that the reformed bank boards and the new professional chairmen can turn to any source other than the Reserve Bank of India itself. This probably suits the Reserve Bank which is a different matter.

Our code of editorial values

Related Topics
This article is closed for comments.
Please Email the Editor

Printable version | Dec 2, 2021 11:10:02 PM |

Next Story