I'NDIAN PRACTICAL BANKING

.A short treatise on the day to day wO'l'king 01

modern Indian Joint Stock Banks

BY
O.S. KRISHNAMOORTHY
Author 0/ " Letters Oil ResenJe Bank"

FOREWORD
BY

FINDLAY SHIRRAS, Esq., M.A., Hooy. F.S.S., I.E.S.

Prillcipal and Professor 0/ Economics, Gujarat Col/ege

Second Impression

BOMBAY:
D. B. TA~APORE.VALA SONS Ilk CO.
"KITAB MAHAL": HORNBY ROAD
 X'l.r:l.N~
F7
'6~31

" AU RiyhtsreSf!'l'i/ed·by the Author."

 Ibananjayarao Gadgil Library

.!I Illlm 8m8111 mm 11111 mil ~ III

. GIPE_PUNE-008631

To
s. N. POCHKHANAWALA. EsQ.,
Managing Director,
TIlE CENTRAL BANX: OF INDIA LTD.
BOMBAY.
 BY THE SAME AUTHOR

Letters on Reserve Bank-{out' of print)

Select opinions from:

The Right Honourable Sir Hilton Younp;, P. C.,
D. S.O., D. S. C., M. P., Chairman, the Royal Commis-
sion on Indian Currency and Finance (1925).
Sir Hilton Young is obliged to O.S. Krishnamoorthy
for his interesting .pamphlet, which appears to him
to contain much sound reasoning. Sir Hilton Young is
assured that its perusal will be of advantage to all
students of the subject.
The Hon. Sir Basil P. Blackett, K. C. I. E., K. C. B.,
Ex-Finance Member, Government of India. (Now)
Director, Bank of England.
" ............ 1 have no doubt the circulation of the
Pamphlet will be useful io,t-h,e intere~t of India."........·.. .
(2) Such'" arli~es! ·a~r~"mo~t' vat~'able' in "guiding
opinion a.right'., ' , I '," 'i
Si.f.R,. N.·Mukheriee, K.C"S. L, ,K. C. V.O., Member,
The RO)TafCommission' on In'dian Ourrency and Finance
h92s}Governor, Imperial Bank .
. " ............ Thanks, I have read it with interest and
agree with many of the views expressed therein."
Sir J. C. Coyajee, Kt., Member, The Royal Commis-
sion on Indian currency and Finance (1925).
" .........•.• The treatment is lucid and interesting as
far as it goes."
Sir, Byramjee Jeejeebhoy, Kt., Director, The CeJ>.~ral
Bank of India.
" ............ You have handled the subject very ably
and those of our public men who take a keen interest on
this burning question of the day might do well to go
over this brochure for further enlightenment on the
subject It will enable them to weigh the pros and cons
of the q' uestion from different angles of vision."
H. G. Cocke, Esq., M. L. A., Partner, A. F. Ferguson
& Co., Auditors, and Ex-President of the Bombay
Chamber of Commerce. .
" ............ 1 can onlv say that I agree with you that a
Share-holders' Bank is likely to be most satisfactory In
the long run and the most practicable to work."
 FOREWORD

Mr. Krishnamoorthy's book on Banking,in Indi~ a.pp~iLr~

at a very opportune time. The problem of .banking is one of
the most urgent of our neE)ds and an enquiry is now uD.de~
. i ' . . ~.;

consideration. We import. a large amount. of the prec~ous

metals dug up in one part of the W orId only .to -be ' hidden
away in ,anQther eithllr in the fo~ of 'jewellery or as bUlI.i~n:,
This renders sterile a large amount of wealth which I'have
estimated in the Economic J ourna~ ,t~ be £550 .,millions
Ql'. a suD;l approximately equal ~o the t~tal tLmo~Ilt o!
gold reserves held by the Government and the Federal Reserve
.Banks i~ the United States. The essentialsprelimina: t~ rY
the use of the country's wealth, for producti~e purpo,s~s~,,;
mass educa,tion, political security, communications, and 'ani
acceptable system of deposi~ banking. 'These are irideed a11\
Governmental' pr~blems and a vig6r~us' use of the .power o£
Government iii required to l;lring about ~he e!,onomic adviLn~,~l
which is so' necessary. Sir George 'Schuster in ',his, ::firsf
Budget speech recentiy said that the question calls for action
~ather than word~. I fully reco,gnize' the' difficU1.tie9~ andtha., I
Government cannot expE)ct to get the small men. all 6vE)r India I
to invest th~irsavings except as a result of a. steadycdUrse of i
education IIond the, provisi9n of. better facilities. Thls is ~ J
matter on which r hope 'our Bankinglllnquity wUIthro"Y' 1
lig~t; " " . . , (J
What then are the fa~ts? In the twelve' mon'th'~ e~ded
December 1928" the total" new ctLPltal rais~d' in' ~ndo~
amounted to £369 millions, the amoUrit raised 'lot domestic
empioyment being 63 per cent. of' the total and f~r bV~rSe~Ei
37 percent. Only £7 miilions were borrowed 'by the, Govern-
ment of India early in the year, large Bums beinrbo~owe~by
the Governments of Aus'tra.lia and New 'Zealand. Other
countries such as Kenya, Tanganyika, Southern Rhodesia:;
Newfoundland, Fiji and foreign.' Governments like Greeoe;
 vi
Bulgaria, and the South Amerioan Republio ~laimed a consider-
able part. India, therefore, has at the present time to compete
with many countries in the London money market. It is in
every way desirable that she should depend more and more (;In
rupee capital. The issues of capital to-day in India, according
to statistics published monthly by the League of Nations, are
on the average of the last five years only about one-eleventh
of those in Japan with a popUlation of 83 millions as against
320 millions in India and an area one-seventh of that of
, India. We require 'more and more capital to improve produc-
tion (whIch ismedimval in many of its branches), to develop
communications, and to educate ourselves to sto're up capital,
We have to see that'the function of a surplus 'of income over
expenditure is devoted to making the future happier. Our
own capital will then grow, and we ruay be able to move
a.head, somewhat as Japan has been doing lately, with less
dependence on foreign assistance.
The Indian Banking structure at the present time is a
decentralised system. Under such a system there is alwa.ys
the greater probability of crises occurring than under a centra-
lised systerp. The history of bank failures since 1913 shows
c;:learly the disastrous effect of such crises, A general break-
down of oredit can be avoided under a system in which banking
rese~ves ara centrs.lised in a central bank endowed with t~e
~ight of note issue. At present banks in India cannot turn
~asily the maximum of their assets into cash. Stringency
breeds distrust and distrust leads to the clinging to cash with
the res~t 'that a crisis becomes inevitable. Joint Stock bank-
ing proceeds safely under the shelter of a true oentral bank.
Organisation of credit' is essential.
The aim pf 'he author is topromo~e the knowledge of
banking. The practical banker may not find much that is
new to him but the student of banking may find benefit from
a perusal of these pages. It has been well said that there is
but one school in which the practice of ,banking can properly
he learned, and that school isa hank. In research in Econo-
mics we bav,e a large field before us. It is not soiinportan.t
 vii
to us as economists to know more about the history of Indian
banking as it is th"t we should know more about the actual
operations of banks, indigenous and joint stock and the actual
uses of credit in different parts of the- country. The careful
study of the records of a particular bank over a period of years
or of a particular shroff would establish a foundation for an
important contribution to Economics. I mem not that the
materials should be first-hand materials but that they should
be new kinds of materials. Otherwise we get another history
of banking of the familiar or standardised sort. In recent
years the Government of India have begun 'to follow the
example of Western countries and to use eoonomists for their
economic advisory work. There are broadly speaking two
types of advisers. One type is the gene~a.l practitioner type who
diagnoses the disease, presoribes the medioines and undertakes
the care of the patient until he has recovered. The seoond
type is the consultant type whioh merely diagnoses the diffi-
culties, presoribes remedies and ~hen goes away, leaving the
full responsibility of treatment to government or perhaps sug-
gesting the appointment of advisers of the genera.! practitioner
type to help to carry out the. treatment reoommended. Indian
Banking, however, will depend in the future than in the past
rather on young men trained in banking and it is to this class
that; Mr. Krisbnamoorthy's book is likely to appeal

G. FINDLAY SmmtAs.
Gujarat College,
Ahmedabad,
4-3-29.
 CONTENTS
Chapter Page
I. Introduction 1
Progress of Banking, Sir Basil Blackett's speech
at Delhi, India as creditor counbry, ways and
means to attain that position, Scottish Cash
Credit system, want of Banking habit 'in India,
India wh~re iii stands, want of publicity, Secret
Reserve.
II. Ba.nks in India, Theil' Classes and how
They operate 10
The Government of India, Imperial Bank of
India. Exchange Banks, Indian Joint Stock
Banks, Co-Operative Banks, Post Office Savings
Ba.nks, Chetties, Marwaries and Shroffs, Func-
tions of a. Banker.
III. Classes of Accounts and how They
are opera.ted 14
Account opening form, Specimen Signature card,
Individua.l accounts, Partn~rsh~p accounts, Joint
Accounts, Joint Stock Companies acco:unts,
Agent's accounts, Paying-slips-books, Issue of
Cheque books.
IV. Drawing, Presentations and Payment
of Cheques ",' 21
Forms of Cheques, Presentation of cheques,
Drawer's signature, Number, Date, Endorse- .,.
ment, Amount of cheque, Stop payment of
cheques, General Crossing and!Special Crossing
of a. cheque, Payment of cheques.
 x
Chapter Page
V. Ledger Accounts, Pass Books, Sa vings
Bank Account, Home Sa.vings Bank
Accounts 28
Keeping of Ledger accounts, Calculation of
interest on credit balanoes, Pass books, Re-
conciliation of the accounts, Pay Order, Balan-
cing of current aocount Ledgers, Savings Bank
Accounts, Home Savings Sa.fe Account, Rules
and Regulations, Cash Department.
VI. Fixed Deposits 38
Deposits how they are attracted, How they
are arranged, Form of Deposit Receipt, Deposit
Diary, Nidhis and Fund Offices.
VII. Bankers' Clearing House 42
How clearing is done, Mode of payment, Re-
marks when returning Cheques.
VIII. Bankers' Advances-l 46
Reports and Opinions, How recorded, ,Procedure
for making advances, Discounting of Hundis,
Shroff's Hundis, Hundis by Private Persons and
Traders, Form of a Hundi, Revision of Limits,
Date of the Hundi, Amount, of the Hundi,
Stamp Duty, Endorsements, Acceptanoe, Due
Dates, Kara.h Hundi, Procedure in recording
Hundis, Payments of Hundis under Rebate,
Rebates on Hundis, Discounted, 1.o.Us.
IX. Bankers' Adv&nces-2 57
Loans and Overdrafts, Cash Credit, Reports of
Parties applying for .Advances, Advances on
Shares, Lien, Bankers' Lien on their own Shares,
Advances on Government Paper, Procedure in
recording Securities, Confirma.tion of Securities
held by Banks, Advances on Promissory Notes.
Form of Promissory Note, Dema.nd Loans, Fixed
 xi
ClIapter t'a,se
Loans to Chetties and Others, Loans on Joint
Signatures, Loans to other Banks, Procedure in
recording Loans, Classes of Securities, •Advances
secured by Mortgage of Property, Adv~nc;s
against undertakings to. mortgage Property,
Advances against. Merchandise, Advances aga.inst
Oil, Skins and Hides, Advances.to Dentists, to
contractors, Advances against Typewriters,
Motor Cars, Against Life Policies, ·F. D.
neceipts, Application of Interest, wor:king of
interest on OverdraUs and Loans, Sa.lt Credit
Advances, 'Advances in other Markets by B~k's
Branches on their own account, Garnishee,
Order.
X. IDvestments 76
Loans and Treasury Bills, How they are issued,
1928 New Loan, Loans under instalment system,
Subscriptions to Loans, Form of Payment, form
of Application, whare to apply; forms of Loans,
Stock Certificates! Bearer Bonds, Promissory
Notes, Non-Terminable and Terminable Loans,
Conversion from one form of Loan to another,
fees for Conversion, Endorsements, Endorse-
ments by Bank!!, Renewal of Securities renewal
fees, Banks' investments, How they are recorded,
Investments in Governmen~ Loans and Treasury
Bills, Investments in Shares. Sale ap.d Purchase
of securities, Investment Trusts, Share Bazaar
Clea.ring House, Bulls a~ !lears.
XI. Remitta.nces-l 90
Inland Remittances, Bank's T.T. and D.D.
Dept., T.T. and D.D. Register. Procedure for
sending a T.T. or D.D. Outward Bills, Reimburse- •.
ment of Debts by Cheques or Bills, Inland Bills
Purchased a/c, Travellers' Cheques, Remittances
by Ha.lf-Notes
 xii
Chapter Page
XII. Remittances-2 97
Foreign Remittances, Outward Bills, How Bills
are drawn, Form of a Sterling bill, Procedure for
discOlliiting, Stamp Duty, Sterling Bills for
collection, Usance, Documenta.ry Bills, Letter of
Credit, Circular Notes, Confirmed Credits
(Inward and Outward), Clauses on Bills drawn
on India.n merchantli, Inward Bills, Bombay
Exchange Association on Sterling drawn· on
India, Bills retired under Rebate, Case in Need,
T.T. or D.D. Purchases, T.T. or D.D. Sales,
Council and Reve~se Council Bil.ls, Sterling
Exchange position.
XIII. Oash Book, General Ledger and Returns... 110
Inspection of Books, Departmental Instruction
Book, Cash Book, General Ledger, Cash a/c in
the General Ledger, Current a/c in the General
Ledger, Clearing a/c in the General Ledger,
Adjustment a/c, General Ledger Balances, Profit
and Loss a/c, p. and L a/c credit items, Debit
items of the P and L 801c, Weekly Returns, Fort-
nightly Returns, Monthly Returns, Quarterly
Returns, Half-yearly Returns, Half-yearly
Reports.
XIV. Ba.la.nce Sheet 121
Short pre~s Communique of the P & LaIc of the
Half-year, Notice of the General Meeting, Form
of the Balance Sheet, Explanation on the liabi.
lities side items, Explanation on the Assets
side items, Percentage of cash and securities held
against Demand liabilities, The strength of the
Bank to meet its Liabilities; Form of Statutory
Statement.
XV. Imperial Bank of India 132
Discussiou on the Liabilities side and Assets side
items, Percentage and Bank Rate.
 ERRATA
Page Line
I 22 and this is
) 25 Their were immense
7 JO much discouraging
15 17 in DO case a good cust0-
mer is turned out .. in DO case ;s a good
costomer. turned out
16 I2 account can be omit u.
19 28 Dame of the party read _ s of the JIarlils
19 JO signature of the party
who takes .. signature of Ute JnSnS
wholsB
30 18 Wheu firms or omitp.s",.
21 14 specimen of cheque -I
read. _0SIJIftIeJI'
n

a2 JO whomsoeyer
24 I) Patel and Shaw Ltd. omit LId.
26 9 collecting should read collecting IN.urh!r
should
27 5 cashed the crossing .. cashed _ Uw UIIIIIn'.
thecrossiog
JO II annasis .. aunas~
39 10 to 5th June 1929 .. -II" " ' - 11)29
41 I bat the depositOl' is paid. .. but the depGsitor if Ite
Usiru /lis Uposa ill
lite .iIJJIle_1 Uw~
Ie is paid
41 12 trade for .. trade",.
49 18 they trade ... they ~ trade
52 J4 huodi may seod .. hUlldi ~ seod
77 30 loan has been .. loan IItuI been
8) II suspence .. 1SJUpe.s8
89 19 sells heaYJ bear .. sells II ~ bear
89 25 there are less .. there is less
95 4 calenders .. CIIhret£us
loa last line canc:eU .. cII1IUl
109 8 called the Council omit lite
II) 28 General Ledger is read Geoeral Ledger lin
liS 21 collection on .. collection _I
111 8 is debited .. all charges lin debited
118 last line ProYident Balances .. ProYident
ces
,.,,4
Balan-
.,.
120 5 Bad Doubtful Debts .. Bad IDIIl Doubtful
Debts
UJ 9 Act require .. Act RqllUa
UJ 29 Goyernmeot took .. GoYernment IIIi4