INTRO

After 1766, the East India Company’s Calcutta Administration was known as the BENGAL
PRESIDENCY. In fact the British India was than divided into three Presidencies. The
Presidency of Bengal, the Presidency of Bombay and the Presidency of Madras. The Bank of
Bengal was also known as the Presidency bank of Bengal. One fifth of its capital was
contributed by the state and remaining by the East India Company.

Bank of Calcutta was set up in 1806 to facilitate borrowings for English trader operations.
Bank of Bombay and Bank of Madras were set up in 1840 and 1843 with 50 lakhs and 30
lakhs share capital respectively. Govt took over the right to issue notes in 1862 and put up
restrictions as per Presidency Banks Act to protect the interests of the Govt and the public.
During world war I, there was no coordination between banks and they were amalgamated to
form Imperial Bank of India.

About 3 presidency banks

1. Presidency Bank of Bombay (1840):

The Bank of Bombay was established on 15th April, 1840 by an Act of Indian Legislature.
Like other two Banks (Bank of Bengal and Bank of Madras) the Govt. was also shareholder
in this Bank. The Govt. was empowered to appoint 1/3 i.e., three out of nine Directors to the
board of the Bank. The bank was started with initial capital of 5,20000 Pounds.
For all the three Presidency Banks the provisions of the Act were same. This Bank very soon
won the trust of the public like other two Presidency Banks. Its operations were thought to be
safe and profitable.

People preferred to keep and invest their money in the Bank. All the three Presidency Banks
were authorized to issue currency notes but with passage of Paper Currency Act 1861
Government took away powers to issue Bank currency/notes.

The Bank was operating satisfactorily but due amendment made in 1863 (original Act 1940)
gave powers to Directors to make advances of any amount to any person on Promissory
Notes. In Presidency Banks the rate of interest was comparatively less than other Private
Banks, as such people preferred to take loans from Presidency Banks. The Bank of Bombay
also started advancing money on large scale.

The Power conferred by the amendment had enabled the bank for extending credit facilities.
But it also started advancing for speculative transactions. Mr. Birich a very high officer of
Government of Bombay was appointed its President. Mr. Blair was appointed as Secretary
and Mr. Ryland was appointed as Deputy Secretary.

In the middle of 19th century due to American civil war and increased speculative transactions
of the Bank the prices of Indian cotton and Property raised alarmingly in Bombay.,
empowered with the amended Act of 1863 the Bank of Bombay lost no time in doing reckless
and desperate banking.
By 1856 the Bank had made losses mainly because of unsecured loans given to many Private
Firms & Non-banking Finance companies like Alliance Financial Co., Asatic Banking
Corporation, Amanchand Bechandas co, etc. In May 1866 the Asiatic Bank had become
insolvent.

Lacs of rupees had been advanced on the basis of merely Prommisory Notes without any
other security required as per sound principles of ordinary banking. Principle of sound and
ordinary banking were neglected. Resultantly with the end of civil war the Bank of Bombay
became bankrupt for unsecured reckless lending to speculators in Real Estate and phony
companies.

In 1876 under the company law A New Bank of Bombay was established with limited
liability of Joint Stock Banks. This became the Bank of Bombay under the Presidency Bank
Act 1876. As per the provisions of the Act., the shareholding of the Government was
withdrawn.

(ii) Bank of Madras (1843):

The Bank of Madras was constituted under the Presidency Bank Act 1876 as a Joint Stock
company with a capital of Rs. 30 lacs. Earlier Governor William Gyfferd on the
recommendations of his council had established a Bank in Madras on 21.6.1693. It
functioned on the old system of banking with laxed regulations. It was known by the name of
“MADRAS BANK”.

In this town some other banks were also functioning. The Carnatic Bank was opened in 1788,
British Bank of Madras in 1795, Asiatic Bank in 1804. Among other banks operated by
English Agency Houses in Madras was a Bank of Arbuthnot & Co. also. Later on it became
Arbuthnot de Monte & Co. Inspite of the fact that it was considered a soundest mercantile
Bank, it failed on 20-10-1906

On the recommendations of Finance committee constituted by Governor William Gyfford a

Government Bank (Bank of Madras) was formed in 1805 which started functioning w.e.f. 1-
2-1806. Although the banks mainly managed by English Agency Houses conducted ordinary
banking business and were joint stock companies but with unlimited liability.

There was gross mismanagement and wide speculation in these banks vulnerable to panic and
defalcations. In view of the functioning of these banks there was a pressure to introduce some
financial reforms particularly to increase the revenue of British East India Company.

With the result Madras Bank, Carnatic Bank, The British Bank of Madras were amalgamated
and BANK OF MADRAS came into being on 1st July, 1843. In the absence of any central
bank authority, The Bank of Madras in addition to ordinary banking business also conducted
certain functions which otherwise are done by a Central Bank.

3. Bank of Calcutta (1806) or Bank of Bengal:

The Bank of Calcutta was launched on 2nd June, 1806 as Regional Bank. Among its founders
were East India Company, Some European Merchants and a few wealthy Indians.
The Govt. of East India company was in financial crises during this period mainly because of
General Wellesley’s Wars against Tipu Sultan and Marathas. The Bank was formed to
provide financial assistance to Eat India Company to fund such wars. The Bank was started
with share capital of Rs. 50 lacs.

Originally started to serve the company’s interests the Bank was granted a Charter in 1809 to
serve all of the Bengal. The Charter granted by British Parliament provided the privilege of
limited liability for share holders and the bank was renamed as BANK OF BENGAL being
first Joint stock bank of India.

Inspite of the fact that the Govt’s shareholding was in minority the Bank was dominated by
the Government Officials. In the beginning there was one Indian Director on the Board of the
Bank Maharaja Sukhmoy Roy Chaudhory. All others were British Directors and employees.
Although the Bank was incorporated in India but for all purposes it was almost a foreign bank
catering to mostly to white customers.

Conclusion
References
https://www.jstor.org/stable/4378608?seq=1

https://www.businessmanagementideas.com/banking/evolution-of-banking/list-of-4-banks-in-india-
before-independence/5336

https://economictimes.indiatimes.com/topic/Presidency-Banks-of-Bengal

https://www.epw.in/journal/1990/22/reviews-uncategorised/presidency-banks.html