"The Role of Community in the Growth of Indian Joint-Stock Banking, 1920 - 1969"

Joint stock banks, a foreign institutional import to India, were dominated by Europeans in nineteenth century. From centuries earlier, Indian business communities – caste, religion, and occupation-based networks – had developed indigenous banking. In the historical evolution of indigenous banking, Indian business communities served as an economic resource, supplying capital, information, and contract enforcement to mitigate principal-agent problems. In twentieth century, India transitioned from a colonial to an industrial economy and subsequently, a post-colonial economy. Indian entrepreneurs, influenced by ‘do good for the country’ objective of swadeshi (economic nationalism), competed with European entrepreneurs to invest in capital-intensive industries. The competition for industrial finance and control of industries spurred the demand for joint stock banks. This raises important questions about the ownership and management of joint stock banks and the wider role of community in shaping economic outcomes through the running of such key institutions. Who owned joint-stock banks in twentieth century, and did they remain a European preserve? Business historians have argued that formalisation of business in twentieth century weakened community as an economic resource. What role did informal institution of community play within formalised Indian joint stock banks?
This paper presents the first comprehensive set of quantitative estimates for the presence of directors by community and nationality in Indian joint stock banks from 1920 to 1969. Extracting board level data for listed joint stock banks from Investor’s India Year Book, combined with analytic narratives, this paper shows that business communities pervaded Indian joint stock bank boards from the very beginning of the period and outnumbered foreign directors by 1950s. Contrary to prevailing assumptions about community’s role in the twentieth century, the paper also shows that community acted as an economic resource for development of joint stock banks. Over the long run, bank boards transitioned from one community dominance to multi-community presence.