Thursday, July 30, 2009


As already discussed, the employees of Banks were nothing but bonded labourers.

Besides the employees, there were a kind of contract workers like ‘Open Loan Representatives’, ‘Godown Representatives’ etc.

The Banks lend, keeping something as ‘Security’ for them so that if the borrower fails to repay the loan, they can fall back upon the Security and realize its value to obtain repayment of their loan.

For this, there are certain types of ‘charge’s on the Securities—like ‘Hypothecation’; ‘Pledge’, ‘assignment’, ‘Mortgage’ etc.

So the Banks take ‘charge’ of the ‘Security’ before lending, so that they can enforce their charge, if necessary, at a later date, if the loan is not repaid.

Generally ‘Open Loans’ are allowed against the charge ‘Hypothecation’.

This is a funny kind of charge—as under this charge, the ‘physical possession’ of the security is with the borrower, but its ‘ownership’ lies with the ‘hypothecatee’ i.e. the Bank!

So, how to have an effective control on the ‘hypothecated’ stocks? The Banks invented the system of ‘Open Loan Representatives’, who will be stationed at the borrower’s premises, supervise the movement of ‘stocks’ and if they are sold, see that the Bank’s share of the sale proceeds are deposited with the Bank!

For their remuneration, they were paid on daily/hourly basis, charging the same to the Customer’s account (Open Loan Borrower’s account)!

………to be continued.

Tuesday, July 28, 2009


The Banks’ main business, as everybody knows, is to collect (idle money from public through) Deposits and Lending them to the needy, earning margin as profit in the process. Besides, they also perform some Agency Services and General Utility Services.

Some of the Agency Services are Collection of cheques and other bills of exchange; Collection of Receivables like Rents etc., Payment of payables like Insurance premiums etc. for which they charge ‘commission’.

Some of the General Utility Services are Sale of Demand Drafts, Purchasing of cheques and other instruments, Discounting of Bills of Exchange etc. through which they earn ‘exchange’.

Thus the Banks are the nerve centre of financial activity in any country.

Some of the World Famous Banks were ‘The Westminster Bank’, ‘Lloyds Bank’, ‘British Bank of the Middle East’, ‘Chase Manhattan’, ‘Bank of America’, ‘Banque de Nationale Paris’ etc.

There were laws framed to govern the Banking practices in various countries and in
India, the Banks are governed by the Negotiable Instruments Act 1881, introduced by the British, in India.

The first Bank started in
India during the British regime was the Imperial Bank, which became, after Independence, State Bank of India, Now the Largest Bank in India. It has associate Banks viz. State Bank of Bikneer & Jaipur, State Bank of Hyderabad, State Bank of Indore, State Bank of Mysore, State Bank of Patiala, State Bank of Sourashtra & State Bank of Travancore.

Later many Banks came into existence and in the year 1969 the then big Banks viz. Allahabad Bank, Bank of Baroda, Bank of India, Canara Bank, Central Bank of India, Corporation Bank, Indian Bank, Indian Overseas Bank, New Bank of India, Punjab & Sind Bank, Punjab National Bank, Syndicate Bank, Union Bank of India, United Commercial Bank were Nationalised to become Government of India Undertakings.

During the early '80s, Five more Banks were nationalised viz. Andhra Bank, Bank of Maharashtra, Dena Bank, Oriental Bank of Commerce & United Bank of India, Vijaya Bank.

During the ‘90s, after introduction of Economic Reforms in
India, doors were opened for establishment of Private Banks and Foreign Banks to enter India. Some of the then Financial Institutions like HDFC, ICICI, UTI etc. became independent Banks and New generation Banks like Global Trust Bank etc. were opened. Many hundreds of Private Banks like Lord Krishna Bank, Krushi Bank, Charminar Bank etc. were also born. Foreign Banks like Citi Bank, Bank of America, Honkong & Shanghai Bank etc. entered and opened their branches in India.

During the late ‘90s, some of the Private Banks began going to The Wall and till now there is no recourse to their depositors. After these incidents, the Reserve Bank of
India has tightened its control by framing and revising the regulations regarding private Banks.

Besides, all the Banks in
India started going hi-tech, using large scale mechanization through computers and utilizing other Information Technology methods and in the new millennium started networking their branches. ATMs in large numbers are opened in every nook and corner of the country by all the Banks. Real Time Gross Settlement is introduced among Banks facilitating easy transfer of funds. As a further step, the Banks started going to Core Banking Solution and the need for inter-branch transfers is also avoided. Thus there is a quantum leap in the Banking industry in India.

(We will discuss the haphazardness of the IT-savvy-ness of the Banks later.)

Meanwhile, we may review the progress and other aspects of the Indian Banking Industry, since

The Banking Business was carried on usually by the Banks in
India before independence the number of branches was very less, located in main Cities and big Towns in India. Competition among Banks was ferocious. The branches were controlled by ‘Agents’ with bear minimum number of Staff. They were empowered or we can say, usurped the power of giving concessions to attract business, both in Deposits and Advances and in Commissions and Exchange. To earn more, they used to ‘collect’ business throughout the day and made the staff to work throughout the night. Some people may not believe if they are told, the Agents punished the clerks and other staff members by caning them on their palms! Thus there born a joke where the Bank employees used to lament “my children do not know who their father is ! It is because, by the time I leave for work in my Bank, they are still asleep and when I return from my Bank after work, they fall asleep!”

It was in those days that the Communist Party of India started organizing the employees into Trade Unions and representing on their behalf before the Managements of Banks. Thus was born the “All India Bank Employees Association”. (AIBEA).

(This was my second post after I have become a serious blogger! What with my private, very slow internet connection and my primitive system, I did not think blogging was so easy! So then I was not a frequent visitor to the blog world! But now......! I want to continue the leftover subjects also and so......await my next posts!)

Sunday, July 5, 2009

‘Corporate Farming……?’

‘Co-operative Farming!’

Our Raja Sekhar Reddy is behaving as if his mental faculties have reached their maximum by declaring he wants farmers to adopt ‘Co-operative Farming’—as if it is his ‘Novel idea’!

In fact, years before independence, the concept was tried and proved a major failure after decades!

There is still ‘Circars Agricultural Development Corporation’ in West Godavari District, formed somewhere near 1940, in which the farmers in adjacent villages, comprising vast areas joined, with their lands as their share capital, obtaining shares according to the land they contributed to the corporation—say, one share for every 10 cents of land—and they carried on farming, as if they are not members of any corporation, sold their product, enjoyed the benefits, and remained members of the Corporation, ‘nam ke vaste!’.

But when they wanted to perform the marriage of their daughter, and wanted to sell their holding, it was not possible to sell their holding to outsiders! They were forced to sell their land to their neighbours, (often big land lords, who could not cajole them to sell their lands at their asked prices for years together, but remained patient vultures) at their (Land lords) asked prices, and leave the lands with moist eyes!

The Banks refused to finance for their agricultural operations, saying, they are not owners of the land! If they have to be financed, the Corporation officials have to sign the Documents for the loan as Co-obligants! When the farmers approached the officials of the Corporation, they reused saying, they could not mortgage the Corporation’s interests!

Did Mr. Raja Sekhar make deep study as to the repercussions? No!

But he is more enthusiastic to implement the scheme!

God only save the small farmers from the Corporate ‘Clutches’!