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
AMMEMBAL SUBBA RAO PAI,
the founder of Canara Bank.