Palai Central Bank: Difference between revisions

{{EngvarB|date=September 2013}}

{{Use dmy dates|date=September 2013}}

From the time of its founding in 1927, Palai Central Bank had an eventful history. The bank's existence was during the period preceding and immediately following India's independence, when [[Kerala]] – a small State in the far south – could exert only very little influence in the nation's capital. It was also a period when the need for protecting the interests of different segments of society was not a major consideration when policy decisions were taken by the Central Government.

== Beginning ==

The bank was incorporated under the Travancore Companies Regulation (1092) with the following persons as the initial Promoter-Directors:-

In 1929, when the [[Great Depression]] struck and [[Travancore]]'s plantation sector was badly hit, the bank gave liberal assistance to the plantations. The bank, which later changed its name to '''Palai Central Bank''', started expanding its activities by opening branches at several places. When the Bank opened a branch in New Delhi, India's new capital city in 1932, it was the very first bank to do so, ahead of even the established north-Indian banks. The Bank also discovered the potential of [[Aluva]] (Alwaye) by opening a branch there, years before Aluva became a major industrial town.<ref name="A Sreedhara Menon">A Sreedhara Menon - A Survey of Kerala History - D C Books - 2008.</ref>

Employees – both executives and staff – were trained to project the bank's motto of customer service. A young boy coming to deposit the scholarship amount he got received the same service that large depositors enjoyed. It was, therefore, natural that years later, when the bright youngster became District Collector, he still regarded the bank as 'his' bank. The bank's branch managers followed an 'open door' policy making them accessible to everyone. This was in sharp contrast with their counterparts of the [[Imperial Bank of India]], who were totally unapproachable to the common man. The bank's managers, KM Joseph and later KM Augustine in [[Thiruvananthapuram]], George Joseph in [[Chennai]] (Madras), KM Chacko in [[Nagercoil]], C J Thomas in [[Delhi]] and others enjoyed exceptional popularity and influence.

When the closure of the State's largest bank also led to a crisis in the entire banking system, there was a hue and cry in all quarters, including the press. But out of sheer obstinacy, Desai refused to reconsider the matter. When a group of Kerala MPs met Nehru requesting that the bank be revived, he told them that he would like to, but his insistence will lead to the resignation of Desai. He said there is a feeling that Finance Ministers did not thrive under him and so he did not want another resignation. In the larger interests of the nation, he asked the Kerala MPs to put up with the whole thing. When Chief Minister [[Pattom Thanu Pillai]] met Desai to make a personal appeal, he cut him out by asking as to how much money he had lost. A furious [[Pattom Thanu Pillai]] told him that like Desai he was also a true [[Gandhian]] and he has never had a bank account in his life. He then angrily walked out. With that, all doors for a revival from Government side were closed.

After the closure of the bank the first impression of the public was that Palai Central Bank had failed. They assumed foul play. When the Finance Minister of the country states in Parliament that the bank's deposits had hardly 15% asset backing, the people had no reason to disbelieve. They had to wait for years to know that even after bearing several years of liquidation expenses, the depositors got more than 90% of their money – but in petty instalments. The people knew only then that as a going concern, the bank could very well have repaid its depositors fully.

About 30 years later, in the early 1990s when banks in India faced a crisis of mounting losses and high levels of [[non-performing asset]]s, an interviewer asked a now-retired Justice P T Raman Nair about his thoughts on the winding-up order of Palai Central Bank three decades ago. He then remarked that today's banks were in much worse condition and that if the current yard stick were applied Palai Central Bank would not have been ordered to be closed.

''"While defending the Reserve Bank as 'one of the best central banks in the world' maintaining a 'high level of efficiency', the Prime Minister, [[Jawaharlal Nehru]], was reported to have acknowledged that it may have made a 'mistake' in closing down the Palai Central Bank.''

''"Defending the (Reserve) Bank's action, the (RBI) Governor recalled the representations received from the Kerala Bankers' Association and the Travancore-Cochin Banking Inquiry Commission to 'go slow' on refusing licences to banks in Kerala and pointed out that if the (Reserve) Bank had taken the action it had now taken in any of the previous three years, it would have been subject to even greater criticism. 'This has been the considered judgement of my colleagues and myself in the Bank.' However, (Governor) Iengar conceded, 'someone else could have exercised his judgement differently'."''

The crisis that shook the banking sector of the country led to some changes in that sector. The demand for protecting the interests of depositors in the event of similar crises led to the passing of the Deposit Insurance Act by Parliament in 1961 and the eventual formation of the [[Deposit Insurance & Credit Guarantee Corporation]] (DICGC). Another demand arose from the allegation that RBI is a bureaucratic institution insensitive to the needs of the banking sector. Its advocates called for the formation of a [[Superintendent of Banking]] like that in the US to carry out the function of supervision of banking in the country. This demand was partially met years later when Government introduced a policy to appoint a career banker as one of the Deputy Governors of RBI.