THE OLD BANK OF BOMBAY.
SIR STAFFORD NORTLICOTE has recently done one very right and one very wise thing. He has sanctioned a Commission of Inquiry into the affairs of the old Bank of Bombay,—a quasi-judicial commission, with power to compel attendance and take evidence on oath,—and he has appointed Sir Charles Jackson to be its President. That is as much as to say that the Indian Secretary, who at first refused to institute an inquiry, now intends it to be both honest and searching, and the report to be unflinchingly outspoken. Sir Charles Jackson is the man who presided over the Committee of Investigation into the affairs of the London, Chatham, and Dover Railway, he has been a Master in Chancery, he is a retired Judge, and he is one of the very few men in the world who unite attorney-like keenness of insight to perfect fearless- ness and integrity. If there has been guilt as well as folly is the management of the old Bombay Bank, the Commissiea will expose it ; and it is impossible, on a careful perusal of the official papers just laid before Parliament, not to perceive that the Government of India is bound, for its own sake, not to hesitate at exposure. Upwards of two millions of money has been lost by men who invested it in the Bank on the assurance that if not in strictness a State institution, it was at least strictly controlled by Government. Their moral right to inquiry, if not to compensation, is clear, and so is that of the outside public, which has lost in the failure the great sum invested in the Bank by the Government itself, and whiek in its indignation is giving credit to all manner of libels, most injurious not only to the character of great officials, but to the moral authority of Government itself. Our own belief, long since expressed, is that the community of Bombay, with the Governor at its head, was during 1864-65 financially insane ; but that defence must be set up during, and not before, the formal trial at bar.
The Bank of Bombay, like those of Bengal and Madras, was organized originally upon a most unsound and injudicious principle. It was neither a private nor a public bank, the Government being simply the largest single shareholder in the concern. It held one-third of the shares, and on that account was entitled to appoint three Official Directors, and to exercise a general supervision over all transactions. This supervision was not an absolute control, but it was quite sufficiently effective when judiciously exercised to prevent the possibility of any great fraud, or any exceptionally severe catastrophe. The Official Directors were always civilians of great position and experience, unconnected with trade, and by a law which Sir Bartle Frere asked the Supreme Government to repeal, were unable to hold shares in the Bank itself. Up to 1863 the official supervision seems to have been exercised judiciously, at least English shareholders would think a management which in twenty years had never lost 2,5001. singularly judicious. In that year, however, a new clause was introduced into the Bank's charter,—intro- duced, says the Secretary of State, almost secretly,—author- izing advances, previously prohibited, upon the shares of private corporations. This change was the ruin of the Bank. During the mania of 1864-65 the officials, who were, in fact, trustees for the public, lost their heads as completely as the Parsees ; and on the 12th April, 1865, the Directors, official and non-official, passed a resolution actually giving a prefer- ence to speculative shares over stock in which Government had an interest. The Secretary was ordered to advance only 650/. on a Bank of Bengal share with 8001. paid up, and worth 1,600/. in open market, but allowed to advance 2,5001. on a share in a Shore Reclamation scheme with 5001. paid up, and selling at 3,0001. The speculative stock was, as it were, officially declared to be fifty per cent. safer than shares in a Government loaa. Acting upon this resolution, which must have been made known to the Government of Bombay, and ought to have elicited at once a most vigorous remonstrance, or if that were ineffectual, a public threat to withdraw all Government bal- ances, the Directors or their Secretary began to make advance; which, as the mania rose and fell, became every week more and more wild, until the official epithet " reckless,"—an epithet used by Sir Bartle Frere himself,—became far tee gentle, and Lieutenant-Colonel Pelly summed up their conduct in a formal appeal to Government in the following terms :—
"That the shareholders have good reason to state that the manage- ment of the Bank has been conducted in a reckless manner quite opposed to the first principles of sound banking. For instance, loans to the amount of many lacs of rupees were advanced to individuals and to speculators on mere personal security. That subsequently, when a monetary crisis threatened, the Directors took up, as security, worthless shares in speculative schemes, which they, to make difficulties worse, transferred into their own names, thereby rendering the Bank liable to large future calls. In another instance the Directors advanced a sum of 25,00,000 rupees as late as the end of April, 1866, to a share speculator, then on the verge of insolvency, accepting securities which three other local banks refused to accept, and which have since proved to be quite insufficient. That it appears from a recently published document, that the Bank has 145 insolvent debtors on its books, whose aggregate debts amount to 2,160,0001., or more than the whole capital of the Bank."
From an official statement of "overdue accounts " it appears that the Directors lent to the Financial Corporation, the Recla- mation Company, other joint-stock associations, and mercantile firms 1,310,0001., for the most part without taking security of any kind. When the panic set in they demanded what are called, in the schedule, " collateral securities," consisting of shares in companies of a more or less " enterprising " character, —shares which, for example, to quote a single instance, sunk from 111,8001. to 14,200/.,—and which, in many cases, in- volved the Bank in liabilities for huge calls. In scarcely a single case did they obtain real security, and the single bit of Government paper throughout the whole list is a petty sum of 2801. in Indian Consols, deposited by a firm which had borrowed 36,0001. without security, and 35,0001. more on the shares of the Bank itself, estimated in the schedule to be worth about a third of the sum for which they were accepted. The Commercial Directors were almost all deeply bitten with the share mania ; and the suffering shareholders allege, in a memorial to Sir Stafford Northcote, printed in the blue- book, that the greater part of the Bank's capital was lost in loans to its Directors, or their partners in other associations ; and though this is not made out, enough is proved to excuse the angry severity of the following sen- tence, a sentence which, supposing it to be utterly groundless, of itself justifies Sir Stafford Northcote's Commission of Inquiry :-
"It would appear from Sir William Mansfield's minute above referred to, that the Government Directors of all the Government Banks of India were under a further special obligation not to be mixed up in speculation or engaged in trade ; the object of their being placed upon the Board of Directors being to act as a check upon the Commercial Directors, who might not be altogether free from influences of that kind. However, as to this point, it is not the intention of your memorialists farther to rely on it than to this extent, that it may be taken that if the Government Directors openly violated this duty, the disregard which they have shown to their other duties is so much the less likely to have arisen from in- advertence, and is therefore all the less without excuse of any kind. And more especially must it so be taken, if in addition to their becom- ing mixed up in the speculations which led to the Bank's ruin, they accepted money favours from the directors and promoters of those speculations, in loans to whom, or on the shares of whose companies, the great bulk of the Bank's money has been lost. That they did so is a matter of common report in Indian circles, and has already probably reached the ears of your Council, if not of yourself. By the very shares through loans on which they were parties to the Bank being ruined, they are stated to have made (or some of them) such fortunes as they never could have acquired by their savings from their official salaries. Between a direct bribe and the allotment of shares at par, which have been run up to such a premium as to enable the allottee to put on the instant an enormous sum as difference into his pocket, your memorialists are unable to perceive the smallest distinction ; and in this way immense donceurs are stated to have been given to the Government Directors by the promoters and directors of the notorious Bombay Reclamation or Back Bay Company, of whose worthless paper the Bank is said to hold a million."
Suspicions of that kind should never be allowed to rest for an hour upon State employe's, and we have no doubt the gentlemen thus assailed,—we do not know their names,— will eagerly welcome the opportunity of proving that they were simply silly. At all events, their "recklessness " has ruined thousands, and they cannot complain if the India House, differing from Sir Seymour Fitzgerald, considers that a thorough exposure of the mode in which the Bank was ruined would have a value beyond that of merely "sensational anec- dotes." It would at least show the world the value of official control of Banking affairs during a share mania.
With respect to the Directors, the public must, of course, await the report of the Commission before coming to any con- clusion ; but there is one individual upon whose political con- duct it is possible even now for the House of Commons to pass a definite opinion, and that is Sir Bartle Frere. Through- out this period of delusion and disaster this gentleman was Governor of Bombay, could appoint and remove the Official Directors, could, in any one week, have demanded that all the transactions of the Bank, even the most secret, should be laid before him, could, by a mere threat of publishing three lines in the Gazette, have reduced the Directors to implicit sub- mission. We must presume that he did his duty, and kept himself carefully informed, more especially as he telegraphed to the Viceroy in cypher begging permission to lend the Bank 1,500,0001. of Government money, to avert a run,—and the alternatives therefore are reduced to two. Either Sir Bartle Frere thought these transactions legitimately within the province of a Bank over which the Government ex- ercised supervision, or he did not. If he did, he was obviously incompetent to understand the simplest rules of finance, the most ordinary conditions of pecuniary safety ; if he did not, he being still in State employ, should be called on to explain why his authority was not at once exerted to check proceedings which he himself styles so " reckless and ill-judged." So far as appears from these papers, he seems to have done nothing to restrain the Bank till the mischief was past remedy ; and so late as the 29th of May, 1866, when all was practically over, we find him recording this extremely lenient opinion :—" The first question that suggests itself as regards that period is, whether any of the ex-Directors of 1864 and 1865 can be individually held responsible to Government for the bad management of the Bank during that period ; and here, I confess, I cannot see my way to any practical action. Whatever opinions we may form either of the general manage- ment of the Bank or of the conduct of individuals, I find nothing tangible in the shape of impropriety or illegality which we could charge against the collective body ; and if we had, I do not see how we could fix the responsibility for it either on the Government Directors as a body, or on any one of them. It may doubtless be said, as of most similar bodies under similar cir- cumstances, that some of them were careless or inefficient, some actively mischievous, and the action of the whole reckless and ill- judged; but if this is admitted, we are still as far off as ever from being able to fix any personal responsibility." The truth is, we believe, that Sir Bartle Frere, as ignorant of finance as most Indian civilians, was as much carried away by the mad rush of speculation and prosperity as the most sanguine merchant in the island, really believed that it was possible under certain con- ditions to get more hay out of a field than there was grass in it. Even Mr. Darby Griffith would not have made such blunders, and the first lesson of this blue-book is, that the weakest Peer, the most obscure Member of Parliament, the most obstinate of English bureaucrats, is a safer Governor for an Indian Presidency than the most illustrious of the Services trained only in Indian experience.
Previous page
