The kings of finance

Thanks to the perception and perseverance of Minoo R. Shroff and Yezdi H. Malegam of the A. D. Shroff Memorial Trust, a major contribution has been made to Indian monetary and banking history by Bakhtiar Dadabhoy’s Barons of Banking: Glimpses of Indian Banking History, published by Random House India, 2013 and priced at Rs 599).

Dadabhoy, a senior officer of the Indian Railway Service, with a penchant for writing biographies, has taken painstaking efforts to understand the working of the financial sector.

The author weaves a riveting story of the struggle of stalwarts such as Sorabji Pochkhanawalla, Purshotamdas Thakurdas, A. D. Shroff, C. D. Deshmukh, H. T. Parekh and R. K. Talwar, and shows how effective they were despite the government of the day being hostile to their endeavours. In some ways, Dadabhoy’s book is the Indian equivalent of Liaquat Ahamed’s Lords of Finance , the internationally acclaimed bestseller.

Barons of Banking brings to life the invaluable contributions of these towering personalities in building India’s financial sector and should be required reading for bankers, financial analysts, economists, civil servants and the discerning public.

Sorabji Pochkhanawala

Sorabji left a covenanted job in an exchange (foreign) bank to set up the first bank in the Bombay Presidency. The book sets out the trials and tribulations of developing the Central Bank of India as a major commercial organisation.

Purshottamdas Thakurdas

Purshottamdas Thakurdas, a cotton trader, was sought after by the Imperial Bank and the Reserve Bank of India (RBI), and though he was openly known to espouse the ‘nationalist’ cause, he was well respected in British India circles as also in London. As a member of the Hilton Young Commission on the Indian currency, there were powerful machinations to prevent him from recording his now famous Note of Dissent, but despite this he was unswerving in his commitment to what he thought was in the best interests of India. As he famously said in the note:“A rising exchange rate (appreciation) discourages exports and stimulates imports while a depreciation has the opposite effect.” Indian authorities today need to imbibe Thakurdas’ dictum.

A. D. Shroff

A. D. Shroff, a brilliant independent economist, was known to be close to the nationalist movement, which disqualified him from the post of deputy governor, RBI. He was a renowned stockbroker with close links to banking, insurance and the corporate sector. Despite being disliked by the British India officials, he was an important member of the Indian delegation to the Bretton Woods conference and his acumen was recognised by John Maynard Keynes. He was instrumental in conceiving the need for large, long-term lending developmental finance institutions.

H. T. Parekh

H. T. Parekh was much respected by the top echelons of government and the RBI. The then RBI governor, Manmohan Singh, quickly recognised that H. T. Parekh was a pioneer of financial deregulation and reform.

Here was a man who was central to developing the ICICI, and who went on to build the HDFC at the age of 66 when most people think of retirement.

Under the leadership of his nephew, Deepak Parekh, HDFC has become a giant financial conglomerate.

Osborne Smith, an Australian, was the first choice of Montagu Norman, governor of the Bank of England, to be governor of the RBI when it was to be set up in the late 1920s.

In the event, its setting up got delayed. British India officials were resentful of Montagu Norman’s choice.

Some of the obnoxious features in the RBI Act, which continue to date, were specifically incorporated to control, indeed, humiliate Osborne Smith (the governor and deputy governors can be dismissed without ascribing any reason).

The relationship between Governor Osborne Smith and Finance Member James Grigg was tempestuous and between Osborne Smith and his deputy, James Taylor (who succeeded Osborne Smith as governor), was even worse.

The first volume of the RBI History is remarkably silent on this episode. Rajul Mathur and A. G. Chandavarkar have undertaken some work on this episode. In 2009, a treasure trove was discovered in terms of the James Taylor Papers which are now in the RBI archives.

While Dadabhoy has provided signal service by a limited write-up on the Osborne Smith episode, he is modest enough to recognise that there is need for a dedicated volume on Osborne Smith.

The Osborne Smith-James Grigg-James Taylor spat was indeed ugly as is evident from the acrimonious exchange of letters.

While the British India officials alleged that Osborne Smith had committed improprieties, they felt that filing charges would boomerang on them and they could face libel charges.

It was the practice then for topmost officials to directly enter into security deals with brokers. Further, brokers called on bank chairmen every morning to offer deals to shift bulk deposits from one bank to another.

These practices continued for the next four decades after the Osborne Smith episode and cannot be evaluated against today’s code of conduct on governance and transparency.

The RBI owes it to posterity to release a dedicated volume on the Osborne Smith episode — warts and all.

(The author is an economist.)

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