With the change in guard at the Reserve Bank of India amid glimpses of the age-old fault line between the RBI and the Finance Ministry, it is a good time to read or revisit Bakhtiar K. Dadabhoy’s Barons of Banking: Glimpses of Indian Banking History. The book gives a comprehensive account of banking history, understandable even to those intimidated or confused by the jargon and technicalities of that world.
Barons of Banking contains a riveting account of the first RBI Governor’s face-off with the Finance Ministry as well as his own deputy. The book is divided into four parts where the second focusses on the birth of the RBI — an institution that should have come into being at least a good eight years before it actually did. There are no points for guessing why it did not: the government wanted to retain ultimate control over money and finance.
After the initial hiccups, the RBI was finally established in 1935 with the intention of it being ‘white and sensible’ and not ‘black and political’, ultimately serving interests in London. To show that the central bank was independent of the government, the first Governor who was instated, Sir Osborne Smith, came not from the civil services but from a commercial background (he remains the only one so far in the RBI’s history). He was also an Australian.
But Smith was forced to resign within a year of his appointment — not because of technical incompetence but his views and temperament. “Relations between the Governor and his Deputy deteriorated to such an extent that the two took great pains to avoid each other,” Dadabhoy writes. The hostility was so evident that one would sail to England on duty while the other remained in India. From private letters to other people, we learn of how Smith was “sick to death of always attempted domination of the Bank”; James Taylor, the Deputy Governor, was constantly trying to handle a visibly disgruntled superior; and James Grigg, the Finance Member, finally expressed his distrust of Smith’s implied “independence”, calling him “a thorough crook” and “a double-crossing agent” because of his alleged corrupt practices with leading industrialists of the time.
The Finance Member finally had his way in the end when he used evidence from intelligence agencies to levy mala fide accusations on Smith and the Governor’s open liaison with the wife of another RBI officer. The episode is especially interesting now in the context of the current tension between Raghuram Rajan and Arun Jaitley.
ramakrishnan.m@thehindu.co.in
