By the late nineteenth and early twentieth centuries, the financial situation of the Pedhi in Baroda State had significantly deteriorated due to an economic depression. Tensions had been escalating since 1835 between the East India Company authorities and Maharaja Sayajirao Gaekwad II, who aimed to reduce the financial dominance of the shroffs (money lenders) over the state. In response, he gradually shifted potedari (money lending) operations to his own private banks.
Changes in Administration and Banking
Following the deposition of Maharaja Malharrao Gaekwad in 1875, Baroda State’s administration was overseen by Diwan Sir T. Madhava Rao, as Maharaja Sayajirao III was still a minor. Diwan Madhava Rao played a crucial role in modernizing the banking system. He closed several Sarkari Pedhis (state banks), established a central treasury, and started remitting funds through branches of the Bank of Bombay. However, due to mismanagement, the Diwan’s closure of the old state banks and replacement with state treasuries significantly impacted local bankers.
Emergence of New Financial Needs
During Maharaja Sayajirao III’s reign, the expansion of commercial and industrial activities created a new demand for credit. The traditional shroffs charged excessively high-interest rates, making them a less viable option for financing. This situation led Baroda State to explore new institutional finance mechanisms to support business growth.
Formation of the Baroda Pedhi Company Limited
In 1884, the Baroda Pedhi Company Limited was established to provide institutional finance for businesses. The company’s name represented a blend of traditional and modern financial practices. It operated as a joint-stock company, with one-third of its capital held by traditional potedars, including Maganbhai Haribhakti. However, the company faced limitations as borrowing was restricted to four to six months each year, leaving its capital unutilized during the rest of the year, which constrained its operations and profitability.
Proposals for a New Bank
The Industrial Commission aimed to restructure and strengthen the Baroda Pedhi Company, envisioning its transformation into a full-fledged commercial bank. In 1906, Maharaja Sayajirao III appointed Mr. Whitenack as Economic Advisor to Baroda State. Mr. Whitenack proposed the establishment of The People’s Bank of Baroda. However, disagreements between the shroffs and the State over the bank’s capital and interest rates led to a need for resolution.
To address these issues, Mr. Whitenack collaborated with Maganbhai Haribhakti, a leading figure among the Baroda shroffs, to draft a report seeking an agreement with the State on the new bank’s framework. Both Mr. Whitenack and Maganbhai Haribhakti were the only Baroda-based members of the committee responsible for drafting this operational framework.
The Inauguration of the Bank of Baroda
On July 19, 1908, a pivotal meeting was held, attended by Maharaja Sayajirao III, prominent shroffs, financiers, industrialists, and government officials. This meeting led to the establishment of the Bank of Baroda, marking a significant step towards modernizing Indian financial systems. The Bank of Baroda Limited was officially registered on July 20, 1908, under the Baroda Companies Act of 1897.
Formation and Leadership
The initial Board of Directors included four promoters from Ahmedabad and Bombay, along with local shroff Maganbhai Haribhakti, who was a founding director, the State’s Accountant General Sampatrao Gaekwad, and Mr. Whitenack in his personal capacity. Vithaldas Damodar was appointed as the first Chairman of the Bank of Baroda. Following this development, the Baroda Pedhi Company was liquidated as per Maharaja Sayajirao III’s order on December 20, 1907.
This post was written in collaboration with Krutarth Bhatt. Featured image is used from Times of India where it displays photo of The four potedars (clockwise from top left) V D Thackersey, Maganbhai Haribhakti, Lallubhai Samaldas, Chimanlal Nagindas.
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