Banks and Industrial Finance

We have examined in the last chapter the methods by which industry raised capital for its fixed and working needs. It was pointed out how, owing to the slow growth of the investment habit, the managing agents became not merely the link between the investing public and the industrial enterprises which were established, but were also the chief providers of capital. For a fairly long time their strong financial position, combined with the resources of their friends and other rich capitalists, enabled them to carry on independently of the banking system. Gradually, however, the changed economic conditions of the country, the growth of newer and additional enterprises, and the inevitable ebb of industry threw on them a burden which they were unable to bear unassisted by banks. But even up to 1916–18, when the Indian Industrial Commission instituted an inquiry into the adequacy of finance for industry, the major industries controlled and managed by the Bombay and Calcutta managing agents had no great complaint about the adequacy of available facilities for the supply of fixed and working capital for industry. Although there were some who complained about the rigidity of the conditions under which banks worked, the bulk of the managing agents were on the whole satisfied that “no industrial company, supported by reputed managing agents and with good prospects, found any difficulty in getting the required finance.” But a change of considerable importance has occurred since then, and particularly after 1921–2. Industry struck on hard times, and the flow of capital even to the major industries has been checked. The system by which the deposits of the public were utilized for current expenses and for extension and improvement and which enabled the managing agents of Bombay Presidency to carry on independently of the banking organization, except in respect of the financing of the purchase of raw materials and sales of goods, proved to be a distinct weakness when depression set in and public confidence was shaken. In Bengal, where both on account of the greater financial resources at the command of the European managing agents and the better facilities of credit they enjoyed at the hands of the banks, there has been no serious dissatisfaction with the banking system, the view is still held that “where an industrial venture is sound the facilities available are fully equal to the actual requirements” and that “banks in India have freely financed industries, large and small.” 1 But the Bengal National Chamber of Commerce, representing the Indian section of the managing agents, has stated that in respect of the industries like rice mills, oil mills, hosiery factories, soap factories, and smaller tea gardens, great difficulties are experienced in getting the required finance, and the demand on the part of those representing smaller industries for a more liberal policy on the part of the banks has grown more and more insistent. It is therefore necessary, in view of the change of opinion and of industrial conditions, to review the work and functions of the Indian banking system, and to examine how far the task which it had set itself to do was done efficiently, and in what respects if any it should modify its structure with a view to meeting the legitimate requirements of industry. 2