The Sociology of Greed

Runs and Ruins in Banking Crises

Prasanta Ray

• Publisher: Routledge India
• Year: 2018
• ISBN:
  9780429016585
• Edition: 1
• Topic: Economics
• Subtopic: Banks & Banking
• Index: Economics

The Sociology of Greed examines crises in financial institutions such as banks from the vantage point of the greed of the people at their helm. It offers an intensive analysis of the banking crises under the conditions of colonial capitalism in early twentieth-century Bengal that led to institutional and social collapse.

Breaking new ground, the book looks at the moral economy of capitalism and money culture by focusing on the victims of banking crises, hitherto unexplored in Western empirical research. Through sociological analyses of political economy, it seamlessly combines archival records, survey and statistical data with literary narratives, realist fiction and performing arts to recount how the greed of bank owners and managers ruined their institutions as well as common people. It argues that greed turns perilous when the state and the market facilitate its agency, and it examines the contexts and histories, the indifference of the fledgling colonial state, feeble political response, and the consequences for those who were impacted and the losses, especially the refugees, the lower-middle class and women. The volume also re-composes relevant elements of Western sociological scholarship from classical theories to early twenty-first-century financial sociology.

An insightful account of the social history of banking in India, this book will greatly interest researchers and scholars in sociology, economics, history and cultural studies.

1
The Institutional Crisis

The 1940s in Bengal was a tragic decade. ‘These years brought to Bengal the warning signals of an all-encompassing crisis that would engulf Bengal and cast a shadow over many decades in the future beyond 1947’.¹ Possibly, the famines, the riots and the partition diminished the visibility of the crisis caused by the ‘run’ on the banks in Bengal in the 1940s (Table 1.1). In no way could the collapse of banks in Bengal within a brief span of time be dismissed as a local aberration. The following generalization holds true for the Bengal episodes also:

Financial crisis would generally begin innocently enough with a surge of healthy optimism among investors. Over time, reinforced by cavalier attitudes to risk among the bankers, this optimism would transform itself into overconfidence, occasionally even into a mania. The accompanying boom would go on for much longer than anyone expected. Then, would come a sudden shock – a bankruptcy, a surprising large loss, a financial scandal involving fraud. Whatever the event, it would provoke a sudden and dramatic shift in the sentiment. Panic would ensue. As investors were forced to liquidate in a falling market, losses would mount, banks would cut back their loans, and frightened depositors would start pulling their money out of banks.²

The years 1947–1949 were most critical. The crisis is considered to be ‘the most widespread’ compared to the 1829–1832, 1857 and 1863–1866 incidents because ‘many of the depositors were ruined’.³ Compared to the other major Indian cities, Calcutta was the worst affected (Table 1.2). The banks in Bengal apparently were not a part of a widespread bank failure and liquidation in 1913.⁴ But between 1947 and 1950, of

Table 1.1 Calcutta area: 81 cases of liquidation

Year	Number of Cases
1940	01
1941	01
1942	01
1943	01
1944	01
1946	01
1947	09
1948	13
1949	21
1950	07
1951	05
1952	04
1953	05
1954	03
1956	02
1958	02
1959	04

Source: Annexure No. 99 (vide Answer to Unstarred Question No. 588 Dated 28.2.61 Col. 2112), Lok Sabha Debates (Second Series) Appendix 1, Thirteenth Session, 1961, Lok Sabha Secretariat, New Delhi: 301–309. Archive, State Bank of India, Kolkata.

Table 1.2 Bank liquidation in major Indian cities (1930–1959)

City	Number of Cases
Bangalore	22
Bombay	22
Calcutta	81
Delhi	20
Kanpur	15
Madras	56
Nagpur	01
Trivandrum	74
All areas	291

Source: Annexure No. 99 (vide Answer to Unstarred Question No. 588 Dated 28.2.61 Col. 2112), Lok Sabha Debates (Second Series) Appendix 1, Thirteenth Session, 1961, Lok Sabha Secretariat, New Delhi: 301–309. Archive, State Bank of India, Kolkata.

all the states in India, West Bengal unfortunately suffered most in the respect of the liquidation of banking concerns (Tables 1.1, 1.2 and Appendix 1). The failure of the Nath Bank (1950) triggering a run on The Bengal Central Bank, the Comilla Union Bank, the Comilla Banking Corporation and the Hooghly, is well known.⁵ The middle-class people of this state lost a major portion of their savings as a result of bank failures.⁶ A large segment of this class was the refugees from erstwhile East Pakistan, previously known as East Bengal.

Bengal had a significant network of a variety of banks.⁷ In the category, ‘Banks other than Scheduled and Provincial Co-operative Banks’, there were 80 with their branches, sub-offices and pay offices in Calcutta in 1947. This was minus the non-scheduled banks with capital and reserve below Rs. 50,000 and those which did not submit the required statistics for 1946 and 1947. Calcutta understandably had a concentration with 27 head offices, 2 central offices, 36 branch offices and 15 registered offices (Appendix 1). There were also 51 scheduled banks in Calcutta in 1947.⁸ The proliferation in banking in Bengal was not exceptional. It was happening all over India. There indeed were political-economic imperatives for the phenomenal growth. But a certain lack of ethics was noted.

The motives behind several of the new banking ventures were not altogether legitimate or worthy. There was evidently a desire to get control over public funds for speculative investments and trading activities and also for pecuniary gains in many ways through excessive salaries, bonus, commissions, and so on. There was, again, in some cases, a desire to control sizeable banking and insurance establishments; this interlocking of interests between banks, insurance companies and industrial concerns was detrimental to the interests of bank depositors.⁹

Surendranath Banerjee observed that profit appeared ‘much easier to make and capital [was] correspondingly less shy’.¹⁰

According to official sources,

two hundred and five of the 634 banks that went out of business during 1940–1951 did so after 1947. Of these, no fewer than eighty-three banks, having outside liabilities of Rs 26 crores (260 million), were from West Bengal alone. Some of these were listed in the second schedule of the Bank Act at one time or the other and included such well-known names as the Nath Bank. But the large majority of the banks failing in this eastern state were little more than loan companies that had over-reached themselves by opening more branches than they could sustain on the strength of their resources and by making large loans against property or inadequate security.¹¹

Interestingly, the offices of the non-scheduled banks were concentrated in West Bengal and in four other states.¹²

Disenchantment of the middle-class depositors with the bank management and the state followed their experience of infectious collapse of banks. The following report is only one instance of many. Mr. T. V. Datar of RBI Central Office, Department of Banking Operations, Bombay, wrote in 1950 ‘that as a result of the suspension of payment of the Nath Bank Ltd., there was a run on the Calcutta National Bank Ltd., and the Hooghly Bank Ltd’. But the failure of the Nath Bank was just a trigger, because the ‘Calcutta National Bank had already exhausted its government securities amounting to about Rs. 7 lakhs’.¹³ A declaration of ‘an emergency under section 18 of the Reserve Bank of India Act’ was proposed by Mr. Bhargava, RBI Manager, Calcutta. The onus of the banking crisis was placed on the depositors’ panic. The banks were to be saved from this public panic by generous loans from the government. Letters, telegrams and flights to Calcutta by very senior office bearers were part of the crisis management drive. Nobody in officialdom thought about saving the depositors from the loot conducted by the bank directors and higher officials. Or of asking and answering a question as to why and how at all the depositors and the other stakeholders became victims vulnerable to panic in the first place. Mahesh Chandra Bhattacharyya (1858–1942), famous for his chain of allopathy and homeopathy medicine shops in Kolkata had observed: ‘Banks prosper on the basis of depositors’ money but they consider their shareholders to be intimate to them while treating the depositors as distant clients. Banks are always apprehensive that the majority of depositors would withdraw their deposits’. His tract titled Byabosai (The Businessman) was written for the fledging businessmen in Bengal.¹⁴

A more relevant measure of the crisis could be the number of the victims – the lower- and middle-class savings bank depositors and the middle-class shareholders. However, there is no official estimate of the number nor of the amount of money they lost. This is not denying that there were other stakeholders who suffered also due to liquidation of banks at least initially. The proviso ‘initially’ is urgent because some affluent stakeholders with useful social networks could retrieve what they had initially lost. Let us take this example:

In conference between the executive committee of the bank (the Union Bank) and the trustees of Carr, Tagore and Company, the 18-lakh (1.8 million) debt was compromised to 6 1/2 lakhs (0.65 million).¹⁵ Although Carr, Tagore and Company was not insolvent and its trustees had announced that they would pay their debts in full, the debt was sold at auction and purchased by Muddun Mohun Chatterjee, probably a client of the Tagore family, for a mere Rs. 40,500.

‘It was a common practice for the debtors of the bank to purchase their own debts at a discount’. Or, some ‘culprits’ would just make them untraceable. Their lack of scruples did not expose them to any legal sanction because the ‘government itself made no attempt to see that justice was done either to the creditors or to the shareholders, who were victims of fraud’.¹⁶ In fact, the debtors’ disappearing act was facilitated by a RBI practice.

It also appears that in many cases the Reserve Bank informs the non-scheduled banks people to give up banking and go to something else. The result is that in many cases the party goes to the High Court, gets an order for altering the Articles and Memorandum of Association and start a new line, all the time cheating the depositors.¹⁷

There is no consensus on the number of helpless victims. According to Pramatha Nath Mukherjee, president, Nath Bank Employees’ Association, ‘forty thousand creditors’ suffered from the collapse of the banks.¹⁸ This could be more reliable because the estimate came from the highest office bearer of the employees’ association of a prominent bank. The only other numerical estimate came from the report of a newspaper. The Amrita Bazar Patrika wrote in its editorial about ‘thousands of families’ in its edition 11 March 1950.¹⁹ Even scholarly researchers could not manage anything more exact. The lack of aggregate data on the number of depositors in banks in Bengal then stands in the way of estimating the size of the victims of bank runs. The chairman of the Canara Industrial and Ba...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• CONTENTS
• List of tables
• Acknowledgements
• A convolute
• Introduction
• 1 The institutional crisis
• 2 Retrieving trust: the banks, the state and the press
• 3 The victims
• 4 The losers’ responses
• 5 Grasping greed
• Epilogue
• Appendix 1 Banks in Calcutta, 1947
• Appendix 2 Banks in liquidation
• Appendix 3 Archival sources
• Index