Barons of Banking: Glimpses of Indian Banking History

Reviewed by Malhar Roy
“Institutions are shaped by men, and finally depend on those who work in them. Yet they serve us and have a life of their own.”

GL Mehta, Former Chairman ICICI

Introduction

Bhaktiar K. Dadabhoy’s Barons of Banking: Glimpses of Indian Banking History traces the evolution of modern banking in India from the colonial era to the end of the twentieth century by focusing on key individuals and institutions that helped shaped the industry. It highlights the critical role of six eminent banking personalities in defining Indian banking institutions. Through a review of their careers, Dadabhoy furnishes a narrative of five of India's leading banking institutions: the Central Bank of India, the Reserve Bank of India (RBI), the State Bank of India (SBI), the Industrial Credit and Investment Corporation of India Ltd (ICICI), and the Housing Development and Finance Corporation Ltd (HDFC).

It delves into history in the fashion of Sir Arnold Toynbee, seeing historical changes as a result of the actions of an elite force. It explores the lives and contributions Sir Sorabji Pochkhanawala, the man behind the Central Bank of India; Sir Purshotamdas Thakurdas, an industrialist instrumental in shaping financial policy; Sir Chintaman Dwarkanath Deshmukh, the first Indian Governor of the RBI; A.D. Shroff, an economist, industrialist and banker who significantly contributed to the establishment of ICICI; H.T. Parekh, former chairman of ICICI and development banker who pioneered retail housing finance with the founding of HDFC; and Raj Kumar Talwar, widely regarded as the driving force behind the growth and expansion of SBI during nationalization. Despite their varied backgrounds—ranging from banking professionals to businessmen and civil servants—their collective contributions to the field of banking provide a comprehensive account of the evolution of the Banking institutions in India and the defining moments.

Struggles Under the Colonial Shadow

The strength of this book lies in contextualizing the development of Indian Banking as a struggle faced by under colonial rule starting from the bank runs post the Swadeshi boom and the Sterling reserves issue. The 1913-17 banking crisis, precipitated by speculative purchases in cotton, inadequate institutional support, wild rumours, and the lack of strong regulations, resulted in generalized runs on banks and fiscal disorder. Despite these challenges, Sir Sorabji Pochkhanawala’s ability to establish and expand an institution such as the Central Bank of India serves as testament to how pragmatic leadership and transparent approach can help build flourishing institutions. Demonstrating that good banking prevails even in the face of bad laws.

The Babbington Committee's suggestions and the British government's move to peg the rupee-sterling exchange rate at 1s:6d during World War I had long-term implications for India's financial independence. Sir Purshottamdas Thakurdas, stand as a firm critic of this artificially sustained exchange rate, contending that it was harmful to Indian industry and commerce, serves as another example of individual struggles in the face of an arbitrary institution. His minute of dissent served as an important pronouncement on India's economic sovereignty, supported by business leaders such as G.D. Birla, who championed a monetary system that would be Indian, not colonial. The Round Table Conferences then added to these controversies, as Indian leaders insisted on increased control over monetary policy and more equitable terms of exchange for the rupee.

Post-war economic realities further exposed India's vulnerabilities in the global financial order bringing to realization Sir Purshottamdas’ fears. India was compelled to hold substantial sterling reserves, essentially subsidizing the British economy. As a result of this India suffered economic woes while Britain stabilized its economy. The Bretton Woods Conference of 1944, which established the twin financial system of the International Monetary Fund (IMF) and the World Bank, offered India the chance to reassert its financial position. India's representation at the Savannah Conference headed by, the RBI Governor, Sir CD Deshmukh made strong attempts to ensure that Indian economy does not carry a huge economic burden and that it gets its deserved share of compensation. His experience and diplomatic acumen were instrumental in determining India's role in the emerging global economic environment. But though India had contributed to the war effort and made economic sacrifices as a British colony, the final settlement provided scant compensation, which serves as an indication of the continuing economic injustices of colonialism.

The book demonstrates the complex interplay between individuals and institutions that helped stabilize the Indian monetary system and make the nation ready for financial independence. Without the contributions of these individuals, it becomes difficult to imagine the transition from colonial economic strategies to a self-reliant financial structure set the stage for India's post-independence banking system. The battle to establish monetary sovereignty in the midst of colonial financial limitations continues to be one of the characteristic themes of India's banking history, and Barons of Banking successfully captures this story with nuance and depth.

Struggles in Regulation: Public and Private

The book conveys how, on different occasions throughout history, both private initiative and state intervention acted decisively to define the financial shape of the country. During the early years, private banking institutions were the prime operators in the financial system, with large sections of industry and urban elites typically being their customers. But the lack of an effective regulatory system and institutional protection made the system susceptible to inefficiencies and financial instability. Identifying these vulnerabilities, committees like the Hilton Young Commission (HYC) and the Indian Central Banking Enquiry Committee (ICBEC) were key in influencing India's banking reform. The recommendations of the HYC in 1926 formed the basis for the establishment of the Reserve Bank of India, stressing the importance of a unified monetary authority to manage currency and credit. Equally, the ICBEC, in its thorough probe into banking operations, acknowledged the need for comprehensive banking legislation, tighter supervisory arrangements and the widening of institutional credit to rural and underbanked regions. These findings reinforced the increasingly recognized fact that an effectively regulated banking sector was crucial to economic stability and equitable growth, paving the way for future financial reform.

As India approached independence, the state became increasingly involved in economic management. The nationalization of the RBI in 1949 was a watershed movement, creating a central bank that acted for the economic good of the country and not for private or colonial interests. Public sector banking grew further with the nationalization of the SBI) in 1955 and the comprehensive bank nationalization in 1969. These actions were prompted by socio-economic and political considerations—rural banking, agricultural lending, and financial inclusion became national concerns, as private banks had given these sectors short shrift. R.K. Talwar, as SBI Chairman, was instrumental in spreading public banking services so that financial resources penetrated the deserving sectors of the economy.

Nevertheless, Dadabhoy does not advance the growth of banking industry under public watch as a qualified success. Though it increased financial access, it also brought new issues, most notably political intervention. The book points to examples like the Mundhra Affair, where public sector institutions were used for personal motives, and the ouster of R.K. Talwar, who fought against politically inclined lending. The SBI Act amendment to enable his removal highlighted the intensifying conflict between state control and institutional autonomy.

This book also recognizes the critical contribution of private financial institutions to economic growth, as opposed to the socialist rhetoric prevailing at the time that frequently threw suspicion on private enterprise. At the time that the Shroff Committee issued its recommendations, pushing for financial institutions that would offer long-term capital to the private sector, it was opposed by a government inordinately committed to state-planning of the economy. Strong anti-private sentiment was present, and industrialists were frequently considered beneficiaries of colonial capitalism and not partners in building the nation.

However, the need for such private institutions like development banks was more and more apparent as India's industrial aspirations outgrew the financial capacity of the public sector alone. The establishment of ICICI in 1955, based on the vision of AD Shroff, was a decisive step in ensuring that Indian enterprises had access to long-term financing for industrial growth. Shroff promoted merchant banking and underwriting, filling the gap between government priorities and private sector requirements. His concept of a dynamic financial system went beyond conventional banking, ensuring that industrial expansion was not arrested due to unavailability of funds.

H.T. Parekh then expanded this vision by appreciating that the financial sector must tackle not only industrial financing but also social progress. In starting HDFC in 1977, he set up house finance in India and brought home ownership to the middle class and showed that financial creativity could serve both economic and social purposes. Their establishment at a point when public sector banks were grappling with inefficiencies in bureaucracy highlighted their crucial position within India's economic advancement.

In a gripping narrative, Dadabhoy describes Indian banking as an ongoing balancing act between public sector growth and private sector innovation. While nationalization provided greater financial access, private sector banking introduced efficiency, competitiveness, and sectoral specialization. The book convincingly argues that a sound banking system is not a question of opting between state control and private enterprise, but of creating an environment where both can coexist in a complementary fashion.

Lessons from History

The book presents a diversified understanding of how India's banking sector evolved with an equal consideration of the work of individuals with larger institutional frameworks. The book harmoniously mixes political, economic, and societal variables to indicate how Indian banking grew as an instrument of monetary empowerment and also as a arena for economic influence.

One of its strongest points is that it has the capacity to present banking history as something greater than a technical or financial story. The book highlights how the contemporary Indian banking came into existence as a reaction to colonial economic systems and how its evolution was closely linked with the nation's quest for financial autonomy. The description of pre-independence banking in India especially astute, highlighting how speculation, poor institutional controls, an extractive and exploitative government, and the lack of robust rules resulted in a systemic failure. However, personalities such as Sir Sorabji Pochkhanawala, Sir Purshottamdas Thakurdas, and C.D. Deshmukh provided examples of how moral leadership and sensible banking were possible in such circumstances. Pochkhanawala's work in creating the Central Bank of India, Thakurdas's advocacy for monetary independence against British economic policies, and Deshmukh's contribution to India's move toward an independent monetary system all supported the notion that financial stability is as much a matter of integrity and vision as it is of regulation.

In the same vein, the book offers a balanced perspective towards state intervention in banking. It finds merit in nationalization as a way to improve financial inclusion and reconcile banking with development objectives but is not afraid of its demerits. Nationalization of the RBI, SBI, and commercial banks played a pivotal role in taking control away from privilege-associated private interests and steering it towards an equitable financial system. Yet, the book is critical of the way political intervention undermined institutional independence, resulting in instances like the Mundhra Affair, in which public sector financial institutions were used for private benefit, and the removal of R.K. Talwar, whose professional ethos conflicted with political agendas. These incidents show how public ownership, though needed for financial inclusion, also brought in inefficiencies and weaknesses.

In discussing contributions of the public sector Dadabhoy is fair also to what private financial institutions did in laying out India's economic path. The contributions of A.D. Shroff and H.T. Parekh highlight how long-term capital institutions such as ICICI and HDFC plugged those gaps in financing that were otherwise left by the public sector banks. The figures are introduced here not as lone individuals but part of a complete set of banking professionals who served institutional integrity as well as innovative finance.

One possible criticism of the book is its focus on individual agency, sometimes at the cost of larger institutional and structural considerations. Although individuals such as Pochkhanawala, Talwar, Shroff, and Parekh were instrumental, banking is a collective enterprise influenced by a variety of policymakers, regulators, and industry experts. Although the book appropriately emphasizes their contributions, a more in-depth analysis of institutional dynamics and policy changes beyond these personalities would have made the analysis even more robust.

Still, it manages to give a complete and compelling narrative of the evolution of Indian banking. It maintains a good balance between historical discussion and biographical account, such that the evolution of financial institutions is placed within the broader socio-political and economic context. The book is both a historical account and a commentary on the persistence of problems of banking governance, and as such, it is a must-read for those interested in finance, policy, and economic history.