CHAPTER VIII SAVINGS BANK

The first Government Savings Banks were opened at the three Presidency towns of Calcutta, Madras and Bombay in 1833, 1834 and 1835, respectively. These Banks were announced as intended for the investment of the savings of "all classes British and Native," the return of the deposits with interest being guaranteed by Government. Between 1863 and 1865 the management of the Savings Banks was transferred to the Presidency Banks, and each Presidency framed its own rules. The first deposits were limited to Rs.500, and upon the balance reaching this sum it was invested in a Government Loan. The limit was gradually increased to Rs.3000 with interest at 4 per cent, but, as it was found that many people deposited the maximum amount at once, a rule was brought in prohibiting the deposit of more than Rs.500 a year in any one account.

In 1870 District Savings Banks were instituted in all parts of India except Calcutta and the Presidencies of Madras and Bombay. The limits for deposits were fixed at Rs.500 a year with a total of Rs.3000 and interest at 3¾ per cent was fixed. In December, 1879, revised rules were drawn up for District and other Government Savings Banks, the most important change being that the limit of a deposit account was raised to Rs.5000 and interest was fixed at 4-1/6 per cent. The result of these rules was to attract to the Savings Banks a large number of deposits which should have gone to other banks, and in 1880 the monthly limit of Rs.500 with a maximum of Rs.3000 was again imposed and interest was reduced to 3¾ per cent.

The proposal to establish Post Office Savings Banks on the lines of those which existed in England met with great opposition, especially from the Comptroller-General. The same arguments were brought forward which the opponents of the Post Office Savings Bank Bill in England used when Mr. Gladstone managed to get this wise and beneficial measure through both Houses in 1861. In 1882 the first Post Office Savings Banks were opened in every part of India except Calcutta, Bombay and the head-quarter stations of Madras. In Madras, savings banks could be opened by the Director-General, provided they were not within five miles of a head-quarter station. The immediate consequence of this measure was an increase in the number of savings banks in the country from 197 to 4243. The minimum deposit was fixed at 4 annas, and interest was allowed at 3 pies a month on every complete sum of Rs.5; it was also arranged to purchase Government Securities for depositors. The end of the first year's working showed 39,121 depositors with a balance of Rs.27,96,796.

On the 1st April, 1886, District Savings Banks were abolished and the balances transferred to the Post Office, but the Local Government Savings Banks at Calcutta, Bombay and Madras remained in the hands of the Presidency Banks until the 1st October, 1896.

In 1904, when the balance at the credit of depositors exceeded 130 millions of rupees, the Government of India began to be rather nervous of being liable to pay up such a large sum at call without any warning. A sudden rush of depositors to withdraw their savings would tax the resources of Government to the utmost and, in order to afford some protection, a rule was made that an extra quarter per cent would be paid upon deposits, which were not liable to withdrawal until six months' notice had been given. Needless to say, the bait did not prove attractive. The additional interest meant practically nothing to small depositors and was poor compensation to large depositors for the inconvenience of having their money tied up for six months. What the measure did involve was a great increase of work and account-keeping for little or no purpose, as the number of accounts subject to six months' notice of withdrawal never exceeded 3 per cent of the total. These accounts were abolished in 1908 and, although the Government of India does not keep any special reserve against the balance in the Post Office Savings Bank, the depositor has the satisfaction of knowing that his deposit is guaranteed by the whole revenue of the country.

The history of the Post Office Savings Bank in India is rather monotonous. With a single exception it has been one of continual prosperity and expansion from 1882, the year of its commencement, to 1914. The balance on the 31st March, 1914, was over 231 million rupees, and, as the money belongs very largely to small depositors, who can demand immediate payment, the bank is placed in a very responsible position towards the public. It will, therefore, be of advantage to examine the political and economic crises which have occurred in this period, and how they have affected the small depositors' confidence in the Government of India.

In Appendix D is given the number of accounts and the balance year by year from 1882 to 1914, which shows that in no year have the accounts failed to increase in number and only in 1897-8 has the balance at the credit of depositors declined. Yet during this period three important crises occurred. The first was in 1885, and was known as the Russian Scare, the second in 1896-7 when India was visited by the worst famine on record, and the third in 1907-8 when a great wave of sedition and discontent spread over the country.

Two of these crises were political and one economic, and it is a remarkable fact that the effect of the former two was felt almost entirely, and of the latter very largely, in the Bombay Presidency. This circumstance goes to prove that the inhabitants of Bombay are more in touch with the affairs of the world than those in other parts of India.

The Russian Scare of 1885, culminating in the "Penjdeh Affair," led to very heavy withdrawals from almost all the more important savings banks on the Bombay side. No less than Rs.2,93,000 were paid out to depositors in the Presidency Savings Bank from the 1st to the 22nd April. The withdrawals in March from Ahmedabad, Kaira, Broach and Surat totalled Rs.2,80,000 against Rs.1,10,000 in March, 1884, and the excess of withdrawals over deposits for the whole Presidency in January, February and March amounted to Rs.9,50,000. The rest of India was not affected by the scare, in fact the total number of Savings Bank accounts increased by 38,000 and the balances by Rs.59,00,000 despite the heavy deficit in Bombay.

The crisis of 1897 was purely economic and was due to a widespread famine and abnormally high prices. Its effect was felt in the Savings Bank for three years, the balance falling from Rs.9,63,00,000 in 1896-7 to Rs.9,28,00,000 in 1897-8, and not reaching Rs.9,64,00,000 until 1899-00. The Bombay Postal Circle accounted for Rs.30,50,000 out of the Rs.35,00,000 deficit in India, the other deficits being in Madras, the North-West Provinces and Oudh, and Bengal.

In 1907-8, as I have already mentioned, the country was full of unrest. Leaflets calling on the men to mutiny were being distributed broadcast among the Indian regiments. Several Sikh regiments were supposed to be seriously disaffected. The feeling in Bengal against the British Government was being carefully nurtured, but the real head-quarters of the anti-British movement was Poona. In 1908-9 the balance of the Savings Bank increased by Rs.5,00,000 only, which meant a serious set-back considering the way in which the Post Office was developing, but the figures for the Bombay Postal Circle are peculiarly instructive. The number of accounts actually increased from 264,558 to 271,604, whereas the balance at the credit of depositors declined from Rs.4,41,00,000 to Rs.4,30,00,000, the actual decrease being Rs.11,46,388. Now in this year Bengal showed an increase of nearly Rs.2,00,000, and the decline in the proportional rate of increase in India was found to be due to the heavy withdrawals of some depositors in Bombay. There is reason to believe that a number of wealthy persons belonging to the commercial class use the Post Office Savings Bank in Bombay as a convenient place to deposit money. This class of depositors numbered 12,198 in 1907-08 and 12,503 in 1908-09, which is larger than in Bengal. Such people do not deposit their money from motives of saving or thrift, but merely take advantage of the convenience which the Post Office offers as a safe place to keep, at interest, money which can be immediately realized. The rule which permits a depositor to have accounts in his own behalf or on behalf of any minor relatives or any minor of whom he happens to be the guardian has opened a way to great abuse of the system. There is nothing to prevent a man having any number of imaginary relatives and opening accounts in all their names. He can deposit the maximum in each account, and naturally in times of crisis or when money is tight the Savings Bank has to face the immediate withdrawal of all these amounts. As one example of what is done, a case came to light some years ago in which a depositor at Dharwar was authorized to operate on eighty-three accounts with a balance of nearly Rs.30,000. He was a broker by profession and it was quite possible for him to control a balance of Rs.2,00,000 in the Post Office, if he wished to do so. Further inquiries made at the time elicited that one depositor at Bijapur controlled forty-two accounts, another at Surat thirty, and another at Karwar nineteen. Such persons are really speculators and are a danger to the Savings Bank, and it would be interesting to know what proportion they hold of the total deposits in the Bombay Circle. These deposits represent a very high proportion of the total in India, so that the action of any strong body of depositors in Bombay has a very serious effect on the balance of the Savings Bank.

The examination of transactions for the thirty years previous to 1914 has this satisfactory result that, with the exception of the undesirable element in Bombay, a political crisis, at any rate, seems to have no marked influence upon the great mass of depositors in India. The number of depositors on the 31st March, 1914, was 1,638,725 with a balance of Rs.23,16,75,000. The outbreak of the war with Germany, however, had a disastrous effect on the Savings Bank balances. When the announcement was made that the German Government had temporarily confiscated the Savings Bank deposits in that country, a regular panic ensued and within a few months about 100 millions of rupees were withdrawn. The action of the Government of India, however, in meeting all claims in full did a great deal to allay public fears, and a certain amount of money came back later in the year, but the balance on the 31st March, 1915, had declined from about 231 to 149 millions of rupees. Since then there has been a gradual recovery, and the balance on the 31st March, 1918, was nearly 166 million rupees. The recovery would have been much quicker but for the large sale of five-year cash certificates in 1917-18 on behalf of the War Loan. The price received was about 100 million rupees, of which a considerable portion was withdrawn from Savings Bank deposits. At the same time the small depositors were busy purchasing cash certificates with money that would otherwise have been put into the Post Office Savings Bank. Now that the War is over and the rush for cash certificates has ceased, there is every prospect that the Post Office Savings Bank will shortly regain its former popularity.