Book Reviews
Venture Capitalists of a Different Era
In India of the late-1800s, there was backbreaking poverty, occasional famines, and age-old cultural practices. But, by the early-1900s, major railway lines linked the ports to the interior as well as to the main cities and towns; steamship moved cargo and people along the coasts; and three Presidency Banks offered business loans. There were two stock exchanges—the Bombay Stock Exchange established in 1875, the second in Asia after Tokyo, and the Ahmedabad bourse that came up in 1894. The Calcutta Stock Exchange came up in 1908. 
 
The US Civil War had turned India into a major source of cotton for the mills in Lancashire which created a small group of extremely wealthy Parsi and Gujarati merchants in Bombay. They had ambitions to set up spinning mills and composite textile mills in Bombay and Ahmedabad. The Crimean War (1853-56) forced the flax mills in Dundee to switch to jute grown in east Bengal and the Scottish businessmen soon realised that gunny bag and cloth could be more profitably manufactured along the banks of the Hooghly around Calcutta. This is how India’s textiles industry took birth in the west and jute industry in the east. There were many other business opportunities. In the words of Omkar Goswami’s Goras and Desis: “Railway lines had to be built and operated across the country; sugar to be manufactured from cane that was being grown in the Punjab, the United Provinces and the Bombay Presidency; and tea to be cultivated, processed and exported from plantations in Assam, Darjeeling and the Dooars. None of these activities required great manufacturing skills and technology. There were steady profits to be made.”
 
By this time, Calcutta, Bombay and Ahmedabad had enough wealthy urban Indians who were willing to risk a part of their wealth to a welter of new businesses that were sprouting, given the then rapid technological change. India also had a contractual and legal system and courts for adjudicating on commercial matters. Time was ripe for entrepreneurs to dream big. But they still needed something more: an organisation that could “attract risk capital and arrange the manufacturing resources.” The managing agency came into being. 
 
A typical managing agency was a “partnership or a closely held private limited company that leveraged its connections and entrepreneurial reputation to float different businesses across India.” Managing agents controlled the businesses in textiles, sugar, transportation, jute and so on. Gillanders, Arbuthnot & Company, which started as a partnership of FM Gillanders and GC Arbuthnot, was in construction. Mackinnon & Company, Mackenzie was in inland and coastal shipping; Bird & Company was in coal and labour contracting for railway lines; and Andrew Yule & Company controlled six jute mills, 11 collieries, 10 tea plantations, a steamship company and several smaller firms. 
 
The managing agencies spotted new opportunities and raised the initial capital. Then, they floated a public issue. Their reputation attracted public money. Riding on growth opportunities and light regulation, over the next few decades, managing agencies came to control vast sections of Indian businesses and continued well into independent India until Indira Gandhi decided to axe them in 1970. The raison d’être of managing agencies was obvious. More than 100 years ago, when there were no developed markets for accessing finance and spreading the risk, what could have connected risk-takers or financiers to business opportunities? It had to be a form of organisation that could take the risk of assessing new business opportunities, fund business enterprises and maintain control by holding legal and financial strings. In some form or the other they have existed “in the US up to the Great Depression; in the UK till the end of World War II; in France, Italy and Spain till much later; in Japan and South Korea till the 1980s; and in much of emerging Asia right up to recent times.”
 
Omkar Goswami, an economist and raconteur par excellence, brings the story of managing agencies alive by narrating their rise through a cast of highly colourful characters. He starts with prince Dwarakanath Tagore, the creator of the managing agency idea, grandfather of Rabindranath Tagore, a risk-taker, a fabulously wealthy man who went bankrupt and died in London in 1846. And ends with the scamsters Haridas Mundhra and Ramkrishna Dalmia; Tata, Birla, Wadia, Sarabhai, Lalbhai, Walchand Hirachand and others appear in between. It’s a fascinating slice of India’s business history.

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Cabinet nod for merging SBI with 5 associate banks
The Union Cabinet on Wednesday approved the merger of State Bank of India and its five associate banks, Finance Minister Arun Jaitley announced.
 
"The cabinet approved the merger into SBI of its five subsidiaries, namely, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Travancore, State Bank of Mysore and State Bank of Patiala," Jaitley told reporters following the cabinet meeting.
 
"The merger will lead to far greater operational efficiency and synergy of operations within these banks," he said.
 
"Obviously, with greater efficiency if cost of operations are reduced, the cost of funds will also come down," he added.
 
The Finance Minister said the merged entity will create a banking behemoth, "a very large bank, not only from the domestic point of view but also globally". 
 
SBI is the country's largest lender with about 16,500 branches, including 191 foreign offices spread across 36 countries.
 
"The merger is likely to result in recurring savings, estimated at more than Rs 1,000 crore in the first year, through a combination of enhanced operational efficiency and reduced cost of funds," a cabinet communique said. 
 
"Existing customers of subsidiary banks will benefit from access to SBI's global network. The merger will also lead to better management of high value credit exposures through focused monitoring and control over cash flows instead of separate monitoring by six different banks," it added. 
 
Jaitley said the proposed merger of Bhartiya Mahila Bank into SBI is still under consideration and the cabinet did not take a decision on the matter on Wednesday.
 
Last year, SBI had announced that it would merge its five subsidiaries and Bharatiya Mahila Bank on receipt of government approval for the same.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

marcelmdesouza

1 day ago

I think most of the major issues have been solved by associate banks with their mgmt and Unions.

Jyoti Dua

2 days ago

Any merger involves lot of dissatisfaction and pain for the employees of the smaller units merged into larger unit. However, mergers are beneficial for overall efficiency.

SatishKumar Janipalli

2 days ago

There is no need for this at this juncture where Banks have lots of money post demonitisation . I have an SBI account but opened a SBH account for better forex rate and they are swift too ...now I fail to understand... SBI with the clout in the forced marriage(none of the SBH employees are happy) - offer the same SBH forex rates to be competitive ....this may be to cover up NPAs of SBI .......with all the Banks merged ...the NPAs look miniscule for write off than SBI Stand alone write off .....it is my uneducated take...

Shirish Sadanand Shanbhag

3 days ago

Merger will add lot of chaos as other five State banks have their own held office, charman and employment terms and conditions.
All these banks were princely state banks. For example, State Bank of Hyderabad was Hyderabad State Bank, formed by Navab of Hyderabad State. Same way other four banks. Originally State Bank of India was Imperial State Bank, of British Government. After independence in the year 1955, it was rechristened as State Bank of India.
Merger will reduce the competition and will add lot of problems to other subsidiary banks' staff in their service conditions.

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