CO129-555-6 Banking crisis 24-9-1935 - 18-10-1935 — Page 73

73

well as to the circumstances mentioned in the preceding

paragraph.

Generally speaking I think we should agree with

the view that sound banking cannot be promoted by legislative restrictions alone, and further that a multiplicity of regulations may hamper the useful development of the

banking system. All observers are agreed, however, that in the circumstances of India (where with no important exceptions only the ordinary provisions of Company Law apply to banks) the case for some special legislative control is fully made out. It is unlikely that a different conclusion could be reached in regard to Palestine, where, moreover, in the absence of a Central Bank such as India is in process of acquiring, it may well be necessary that Government should play an even greater part.

As regards minimum paid-up capital, the figure

proposed in Palestine is over six times as great as that

which has been suggested for India.

Clearly this is a

matter where local conditions must count for much, and it

is also a form of control which Indian experience suggests

is of doubtful effectiveness. In this connexion we should

certainly advocate careful consideration of some scale,

based on extent of business, rather than a universal

minimum.

We would also suggest that it is, perhaps, even

more important to prescribe a minimum relationship between

paid-up,,subscribed and authorised capital. The abuse

of a large authorised capital has been frequent in India, and

the proposal which at present holds the field is that

authorised should not be more than twice subscribed and

paid up not less than half subscribed. This might be

more effective than the mere mention of each of the figures

as suggested in the Report.

It