DailyOh! Why all bank crises since 1860s look the same, to how an Indian maharaja beat Winston Churchill

The Yes Bank crisis takes us back to the Presidency Bank of Bombay.

 |  7-minute read |   06-03-2020
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Hello,

Hope you are doing good. If you are a Yes Bank customer, though, the chances of that are low. There is so much dependent on what we earn and what we save, that it is natural for us to panic when the bank we banked upon is going through a crisis. But we suggest do not go by rumours. Follow Reserve Bank of India (RBI) updates and statements on the developments.

And if you are not a Yes Bank customer, or do not know what has happened at the bank, let us help you get up to date. The RBI has taken over the affairs of Yes Bank and placed strict limits on its operations, which include a cap of Rs 50,000 on withdrawals. Wondering what forced the RBI to do it? Yes Bank is flooded with bad loans. When people borrow from a bank but can’t return the money, the loan given out by the bank is called a bad loan.

yes-bank-690_030620043709.jpgThe RBI has taken over the affairs of Yes Bank and placed strict limits on its operations. (Photo: Reuters)

Now, almost all cases of bad loans have proven to be a result of bank frauds. They have happened because bank officials lent money to failing businesses without checking their ability to pay back. Businessmen just bribe the officials to clear their files and get crores of rupees as loans. If you are a service-class person and have tried taking a loan, you know how difficult the scanning process is. Not so much for the men and women who can bribe. We are in no way suggesting that you bribe anyone. Never. The consequences are bad. As is bribing itself.

But let’s come back to Yes Bank for now. So, because Yes Bank has a lot of bad loans on its head, it has failed to raise any money from its operations. It is for this reason that RBI has taken matters into its own hands.

And how exactly is RBI trying to tide over the crisis? RBI has selected the State Bank of India (SBI), the nation’s largest lender, to lead a consortium that will inject new capital into Yes Bank. In simple words, the RBI has asked SBI to invest in Yes Bank, to help the bank recover. A similar problem had been reported by PMC Bank in Maharashtra just recently. Remember the photos and videos of people standing outside the bank’s branches? Angry, sobbing and anxious faces are seen after most bank crises.

But bank failures are not a new problem. They have existed for far too long. And while we were thinking about bank frauds, we were reminded of the Presidency Bank of Bombay (PBB) crisis. That bank was started by the East India Company in 1840. It ran well till the mid-1860s because this was the time when the American Civil War broke out.

You might be wondering what the Civil War in America had to do with a bank crisis in India.

When the Civil War started, supplies of cotton from America started to fall and this increased British reliance on Bombay cotton markets. So naturally there was a lot of money around. Around the mid-1860s, the PBB began to issue loans recklessly. This is the same kind of phenomenon that invited the 2008 world economic crisis after a housing boom in the US saw Lehman Brothers give out loans recklessly to people.

bank-690_030620043752.jpgThe Presidency Bank of Bombay was hit by the problem of bad loans in the 1860s. (Photo: RBI)

In 2008, Lehman Brothers filed for bankruptcy, meaning it said it has no money left. The PBB did it in 1868.

Bank after bank has repeated similar frauds, with government after government promising they will fix the system. We are not trying to say there is no hope in hell. We are trying to say that governments haven’t learnt from their mistakes and customers like us have had to pay the price for it.

Despite all the problems, banks have existed in India since 1770, with the first bank, Bank of Hindustan, being established that year. Have you ever wondered where the word bank came from? We did, today, and then decided bank should be our Word Of The Day.

The word bank comes from an Italian word, banque. Banque essentially means a bench but came to be used in the current sense because since Italian money lenders and changers borrowed and lent money beside a bench. They placed the money on that bench.

While the word banking was not found in existence till about 1640 AD, the practice of safe-keeping and savings flourished in the temple of Babylon in 2000 BC.

In Arthashastra, written in about 300 BC, Chanakya mentions about the existence of powerful guilds of merchant bankers who received deposits, and advanced loans and issued hundis, what we now call letters of transfer.

Even as we discus all this, we hope that Yes Bank account holders find an early redressal to their problems.

From one crisis, let’s move on to the next. This time a global one: the scare of the coronavirus. In India, so far, 31 cases of Covid-19 have been confirmed and the government has advised people to avoid gatherings. We told you just this week that Prime Minister Narendra Modi has told everyone he won’t be participating in any Holi milan programme this year. And today, singer Katy Perry and actor Orlando Bloom reportedly announced that they would be delaying their wedding. The couple, who was scheduled to get married in Japan, have postponed the event to 2021.

Perry had on Wednesday confirmed she was expecting her first child. So, the kid too would be able to attend the wedding in 2021, we guess. As they say, there is some good hidden even in the worst situations.

So, weddings are being postponed, but what about sex?

Some advisories say it is okay to have sex, but not okay to kiss - as a precautionary measure to coronavirus. But the best thing to do in cases of epidemics is to follow what the World Health Organisation (WHO) says, and WHO says kissing can definitely spread this coronavirus. On sex, WHO says, though coronaviruses are not known to be sexually transmitted, it is too soon to know. Did that leave you confused? Us too.

From news of bank frauds and coronavirus, let’s move to some good news. Indira Gandhi and Amrit Kaur have been named by TIME magazine among the 100 most powerful women of the century. Time named Amrit Kaur as the ‘Woman of the Year’ for 1947 and Gandhi for 1976.

amrit-690_030620044201.jpgAmrit Kaur has been declared ‘Woman of the Year’ for 1947 by TIME magazine. (Source: Wikimedia Commons)

We keep talking so much about Indira Gandhi, so today let’s just talk about Amrit Kaur. Her profile in TIME magazine says that the young princess returned to India in 1918 after studying at Oxford and soon became fascinated with Mahatma Gandhi’s teachings. Born into the royal family of Kapurthala, Rajkumari Kaur “decided her life's mission was to help India break free from its colonial ties and oppressive societal norms”. Kaur was one of the 15 women Constituent Assembly Members in the Constituent Assembly, and was the first woman Cabinet minister of free India.

But did you know that while being actively involved in the struggle for India’s freedom, Kaur bargained hard with Mahatma Gandhi to be allowed to play tennis every day? She had to bargain because everyone, who stayed at the Sabarmati Ashram, had to spend one hour spinning cotton on the charkha. It was this one hour that Kaur wanted to play badminton. That makes us feel a little lighter already.

Since we are talking of honours, Maharaja Ranjit Singh has been voted as the greatest leader of all times in a poll conducted by BBC World Histories. You would be surprised to know that Ranjit Singh beat people like Winston Churchill and Abraham Lincoln in this survey, in which 5,000 people voted. Ranjit Singh first fought in a battle when he was only 10 years old. That we have to say was incredible. When he turned 17, he thwarted the king of Afghanistan, Zaman Shah Durrani's invasion of India.

Did you know that it was Ranjit Singh who covered Amritsar’s Harmandir Sahib in gold in 1830? It was after this that Harmandir Sahib came to also being called the Golden Temple. Under Singh, the Sikh empire was very secular. The army allowed men from different religions to rise to commanding positions of authority. That perhaps is the reason why people like Ranjit Singh will always remain relevant. And that is perhaps why Singh was voted the greatest leader of all times, two hundred years after his time.

On that note, we will take your leave for today. Have a good weekend and just to remind you, India will play Australia in the Women’s T20 World Cup on Sunday. We will be rooting for the Women in Blue. We hope you’ll be cheering for them as well.

We will meet you on Monday.

Also read: DailyOh! Why you can't stop touching your face, to the disease that wiped off the mastodon

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