Looking back at banks, loans and Heralds at a time when the
Ambassador has just said ‘goodbye’

After a couple of years at Madras Christian College, I entered the profession of journalism in 1962. It was the pre-nationalisation era of class banking.

Small, especially new, businesses had no access to funding by commercial banks. In that era, banks were essentially a collection entity. They used to collect financial instruments, charge for the service and strictly no over-drawing was permitted.

I had stabilised the business venture that included the publication of the transport monthly Mobile, a bi-monthly for two-wheelers Trade Wheel, and a Tamil monthly Cycle Seidhi. I launched Industrial Economist as a fortnightly business journal from South in  March 1968 and began phasing out the smaller publications.

I was getting ready to graduate to a four-wheeler. My bank, the second largest at that time, would have nothing to do with that. I approached the Manager of Indian Bank, T’ Nagar, A.P. Anantharaman. He said only the head office could decide.

In the pre-nationalisation era, the chief executive of the bank was all-powerful Secretary, with the Chairman not handling executive functions. I rang up the Secretary of Indian Bank, Balachandran, and sought an appointment. He suggested 11 a.m. the next day.

I reached the Indian Bank head office in the Indian Chamber building, Esplanade, ten minutes ahead and greeted him in his stately room.

Balachandran returned the greeting and motioned me to sit down. I submitted: “I am interested in buying a Standard Herald car priced at a little over Rs. 18,000. Here is the invoice from Union Motors. I need a term loan of Rs. 12,000 repayable in four years at a monthly instalment of Rs. 250. I can pay Rs. 6,000 as margin money and also the monthly interest.

“The bank releases advertisements worth Rs. 3000 annually in Industrial Economist and so, not much of risk is involved.”

The Secretary looked at me for a minute and said: “Take it!”

I thanked him. Before I was back at my office, Anantharaman had already telephoned twice. In an excited voice, he said that the Secretary had instructed him to hand over the cheque. At the time, I didn’t even have an account with the bank!

The next morning, I opened the current account, deposited the margin money and collected the full payment for the car in a matter of a few minutes. I then mildly enquired whether I could also ask for an overdraft for a modest Rs. 5000. Anantharaman sanctioned it instantly!

This development was just before the nationalisation of the 14 major banks on July 19, 1969. Nationalisation marked the transformation from class banking to mass banking.

The 1970s witnessed a spectacular expansion: banks went on a recruitment spree inviting young, qualified men and women on a scale not witnessed earlier. The nepotism and the lack of professionalism witnessed before gave way to system-based recruitment. The new generation of staff was fired by a spirit of reaching out. I remember the Monthly Service Agency division of Bank of Baroda manned by young men constantly on the move to reach out to segments till then unreached. Small businesses, agriculturalists, street vendors of vegetables and other such were provided bank loans for the first time! Small barber shops received big facelifts through modest loans for decor, special chairs and simple tools.

Of course, the course was not smooth. There were sticky loans and accumulation of non-performing assets. Some banks were also involved in scams.

But the two decades after nationalisation witnessed spectacular expansion and reach. Large sections of the population till then unable to access bank credit, were wooed and provided loans.

In our own case, the growth was possible thanks to the priority status accorded to the small sector and the availability of bank funding on modest terms. In the 1970s, we took over a dozen loans for importing printing machinery and also for acquisition of equipment from within the country. We could also access funding for a variety of our needs – machinery, margin money for land and buildings, cars, two-wheelers, computer systems, etc.

The opening up of the economy in the 1990s brought about fundamental changes not all of them beneficial to the small and medium sectors. Importantly, the sector lost its priority status, lower rates of interest enjoyed by the sector compared to the large sector vanished. While the large sector could access funding from the market, from the foreign sources and numerous other avenues, the SME sector could not do so. We witnessed a peculiar paradox: large companies could borrow with interest at rates much lower than the prime lending rate of banks while for the small sector it was often PLR plus up to 4 per cent. One witnessed the large sector accessing loan at 6 per cent as against a small unit being extended loans at 16 per cent. Yet the small sector is still described as part of the priority sector.

The years since 1998 witnessed a spectacular expansion of retail lending. This in turn triggered demand for housing, cars, higher education... The aggressive entry of Indian commercial banks with the lower rates of interest edged out strong international players.

However, commercial banking is still predominantly in the public sector ensuring security of the assets. But, the system suffers from the lack of an aggressive and competitive functioning is. The rates and practices are uniform with little leeway for differentiation. The public sector culture of a slow grind and bureaucratic functioning are still major characteristics. Technology induction is high, but management practices are still archaic. Most importantly, transaction costs are high.

Through the last 50 years, I have seen massive changes. Yet the penetration level is still low. A high portion of monetary transactions is still by cash, contributing to tax evasion and generation of humongous quantities of black money. It is common to see in large jewellery shops in T’ Nagar transactions of several lakhs of rupees concluded in cash. (Courtesy: Industrial Economist)

-S. Viswanathan