The Changing Profile of Indian Banking

By J. N. Saxena

Summary

Delivered as the A. D. Shroff Memorial Lecture in Bombay on 25 April 1977 and published by the A. D. Shroff Memorial Trust on 1 June 1977, J. N. Saxena’s address surveys what he calls the “sea-change” in Indian banking over the preceding decade and a half. Saxena, a career banker who served the Imperial Bank and then the State Bank of India from 1938 to 1970, ran the Bank of India between 1970 and 1975, and is at the time of writing Chairman of the Industrial Development Bank of India, opens with a homage to Shroff’s conviction that “a well informed citizenry is the foundation of enduring democracy” before turning to the structural, physical, qualitative and conceptual changes that have reshaped Indian banking since 1951.

The bulk of the lecture as rendered traces three structural shifts. First, the emergence of a dominant public sector — through the 1955 nationalisation of the Imperial Bank into the State Bank of India, the 1968 imposition of “Social Control” on banking, and the July 1969 nationalisation of fourteen major banks — which now controls roughly 85 per cent of the banking business. Saxena’s striking concession is that it was the philosophy of bank managements themselves, with their wholesale-banking bias, urban concentration and indifference to rural credit, that “forced” the entry of the state into the system. Second, the October 1975 launch of Regional Rural Banks, a proposal he says he had mooted as early as 1971; he describes his own preferred “district bank” variant (with shareholding spread among sponsoring banks, other commercial banks, state financing agencies and even village moneylenders), defends the scheme against scepticism, and argues that 60,000 rural offices would be needed to give every cluster of ten villages a branch. Third, a “Profile of Growth” detailing the rise of commercial bank offices from 4,151 in 1951 to 23,630 by end-1976, the fall of population-per-office from 71,500 to 26,000, the climb of rural offices from 13.5% to 37.3% of the network, and the increase of aggregate deposits from Rs. 843 crores to Rs. 17,132 crores.

The last rendered pages open the discussion of “Qualitative Changes”: the shift from wholesale to retail banking, the rise of priority-sector lending (from 14% to 26.6% between 1969 and 1975), and a conceptual reorientation in bank lending whereby balance-sheet analysis moved from a liquidity to a going-concern view, term lending replaced the older taboo on long-dated loans, and the Tandon Committee Report introduced quarterly-budget follow-ups to tie credit to actual business needs. Saxena ends the rendered chunk arguing that what is really financed is not inventories or receivables but the borrower’s “activity” — a hint at the credit-philosophy critique that presumably continues past the visible pages.

Key points

• Saxena dates the transformation of Indian banking to the last 10–15 years and characterises it as multi-dimensional — structural, physical, qualitative and conceptual.

• He concedes that the philosophy of pre-1969 bank managements — wholesale bias, urban concentration, neglect of rural credit — itself forced the entry of the public sector that today covers roughly 85% of banking business.

• He sketches the institutional sequence: State Bank of India in July 1955, the 1968 ‘Social Control’ regime, and the July 1969 nationalisation of 14 banks holding 57% of aggregate deposits.

• He claims early authorship of the Regional Rural Banks idea (mooted in 1971), defends the October 1975 scheme, and argues for 60,000 rural bank offices to serve roughly six lakh active villages on a one-to-ten ratio.

• His proposed ‘district bank’ variant would have spread shareholding across sponsoring banks (30%), other commercial banks (30%), state financing agencies (20%) and district residents (20%), including village moneylenders.

• He marshals headline statistics: commercial bank offices up from 4,151 (1951) to 23,630 (1976); per-capita deposits from Rs. 36 to Rs. 245; aggregate deposits from Rs. 843 to Rs. 17,132 crores; rural credit-deposit ratio rising to 52.6% by December 1974.

• On qualitative change, he traces the move from wholesale to retail banking and the rise of ‘priority sector’ credit from 14% (1969) to 26.6% (1975), with agriculture at 11% and small industry at 12% of total credit.

• He frames the Tandon Committee follow-ups and the shift from ‘liquidity’ to ‘going-concern’ analysis as a deeper conceptual change — but signals dissent on what banks really finance, locating the answer in the borrower’s ‘activity’ rather than in inventories or receivables.

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