Des­tined for the long haul


Founded in 1906 by Am­mem­bal Subba Rao Pai, Ca­nara Bank stands tall as a pre­mier bank in In­dia that pairs tra­di­tional pru­den­tial val­ues with the em­brace of moder­nity.

ONE HUN­DRED AND TWELVE years ago, a man with rare courage ven­tured on the first steps to start a bank in Man­ga­lore. Re­al­is­ing that smaller bor­row­ers—small traders and peas­ants— were at the mercy of money­len­ders who were charg­ing in­ter­est in ex­cess of 50 per cent, Am­mem­bal Subba Rao Pai, a lawyer by pro­fes­sion, started the Ca­nara Hindu Per­ma­nent Fund Lim­ited in July 1906. More­over, he re­alised that tra­di­tional chan­nels for sav­ings were not en­tirely risk-free and that a larger in­sti­tu­tional struc­ture would not only pro­tect and re­ward sav­ings but also pro­vide a prof­itable av­enue for credit that would chal­lenge the stran­gle­hold of the money­len­ders in the ru­ral econ­omy.


Subba Rao Pai mod­elled this ven­ture on the suc­cess­ful ex­am­ple set by the Madu­rai Hindu Per­ma­nent Fund Lim­ited, which, in­ci­den­tally, was pro­moted by a group of lawyers with some help from lo­cal mer­chants in Tamil Nadu. Four years later, the Ca­nara Hindu Per­ma­nent Fund blos­somed into Ca­nara Bank Lim­ited. More than a cen­tury later, Ca­nara Bank con­tin­ues its jour­ney as a pre­mier bank in In­dia, one that pairs tra­di­tional pru­den­tial val­ues so es­sen­tial for a sys­tem­i­cally im­por­tant in­sti­tu­tion with the dar­ing of em­brac­ing moder­nity.

Subba Rao Pai’s com­mit­ment to the long haul is vin­di­cated by the fact that the Ar­ti­cles of As­so­ci­a­tion of the Per­ma­nent Fund stip­u­lated a cap of 10 per cent on the in­ter­est rate even though the pre­vail­ing in­ter­est rates were much higher. That this was not a gim­mick is also borne out by the fact that the very first bal­ance sheet of the ven­ture showed a profit, in­di­cat­ing that Subba Rao Pai was suc­cess­ful in un­der­cut­ting the money­len­ders with­out sac­ri­fic­ing the vi­a­bil­ity of the fledg­ling ven­ture. The ven­ture, es­tab­lished with 2,000 shares of Rs.50 each, was one of the first joint stock com­pa­nies to be floated in South Ca­nara. It was not just the money­len­ders who were its com­peti­tors. The area was al­ready ser­viced by Bank of Madras which en­joyed a sig­nif­i­cant pres­ence in south­ern coastal Kar­nataka at that time. It is ev­i­dent that Subba Rao Pai did not see the in­cum­bent bank as a threat be­cause he re­alised that Bank of Madras catered al­most ex­clu­sively to the larger mer­chants and land­lords and was not ac­ces­si­ble to those lower down the so­cial and eco­nomic scale. This was apart from the fact that Bank of Madras charged high in­ter­est rates from bor­row­ers.

It is in­ter­est­ing that the South Ca­nara re­gion was the base for sev­eral banks in the early years of the last cen­tury. Most an­a­lysts of bank­ing at­tribute this to the high lev­els of lit­er­acy and to the com­mer­cial­i­sa­tion of agri­cul­ture in the area. As early as 1929, there were at least 10 banks thriv­ing in the re­gion, but even at this stage it was ev­i­dent that Ca­nara Bank was the leader of the pack. It had the high­est paid-up cap­i­tal among the 10 banks. A rash of bank col­lapses in In­dia in the 1920s and 1930s, most no­tably that of the Tra­van­core Na­tional and Quilon Bank in 1938, re­sulted in a loss of con­fi­dence, but Ca­nara Bank re­mained un­scathed. In fact, as a mea­sure of in­still­ing con­fi­dence among the pub­lic, the bank vol­un­tar­ily of­fered its books to be ex­am­ined by the Re­serve Bank of In­dia (RBI), which en­hanced its pres­tige among ex­ist­ing and prospec­tive cus­tomers. This also ex­plains why un­like many of the other smaller banks, Ca­nara Bank was not swal­lowed up by larger ones dur­ing the pe­riod of bank con­sol­i­da­tion in the 1930s and 1940s (many smaller banks also per­ished dur­ing this pe­riod). By 1939, Ca­nara Bank had 38 branches, of which 12 were in


the founder of Ca­nara Bank.

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