2.1 Introduction

The Indian financial system has evolved over time, keeping pace with the country's economic development and changing policy paradigms. Since independence, the overall policy paradigm assigned a critical role to the banking sector in financing the Indian development process. Initially, efforts involved bringing large commercial banks under government control, facilitating a massive expansion in banking since 1969. To supplement commercial banks, cooperative banks were activated and regional rural banks (RRBs) were established with the specific objective of promoting the financing of agriculture and rural economic activities. The post-reform period witnessed the emergence of a broad-based financial sector in India with the development of different segments of the financial markets and other financial institutions.

It is important to note that notwithstanding the development of other constituents of the Indian financial system during the post-reform period, commercial banks continued to be the dominant segment. Chapter 1 provided an introduction to banking in general. In this chapter, we will discuss in some detail the banking system in India.

Section 2.2 provides an overview of the Indian financial system, particularly with the objective of gaining a comparative perspective on commercial banks. This section introduces the key constituents of the Indian financial market such as the equity market, government securities market, corporate bond market, money market and forex market. Information about different financial institutions in India such as cooperative banks, RRBs, non-banking financial companies (NBFCs) and development finance institutions (DFIs) is also provided. Next, section 2.3 traces the evolution of commercial banking from a historical perspective.

3.1 Introduction

The state of the economy of a country is characterised by several indicators such as GDP, consumer price index (CPI), balance of payments (BOP), money stock, government expenditure, savings and investment, interest rate, and so on. Such indicators represent different aspects of an economy. For example, BOP captures international transaction of goods and services as also cross-border capital flows. CPI is a proxy for general prices. Amongst all these, GDP is the most important indicator and popularly used as a barometer to measure the size of economic activity in a country. It captures the sum of market values of all final goods and services produced in a country during a particular period such as a year or a quarter. Standard macroeconomics textbooks provide details about the concept and measurement of such indicators.

GDP is treated as a proxy for the total amount of income generated in an economy. Owners of capital and land, suppliers of raw materials and other factors of production such as workers, entrepreneurs, and so on, earn their income by participating in the production of goods and services. The total revenue earned from the sale of goods and services produced is distributed amongst these stakeholders. For producing more output, higher number of workers, larger amount of capital and raw material, and so on, are required. Accordingly, more output entails generation of more aggregate income for all the stakeholders who participated in the production process.

This chapter explores the turn within Western thought about the story of Noah towards its historical meaning. Crucially, the production of new ‘knowledges’ in the secular arts and sciences during the late medieval and early modern periods generated critical reflection on the ‘knowledge’ contained within the Bible. This chapter explores late medieval and early modern discussions on the size and shape of the ark, what animals were on the ark, and how the ark could feed and house them all. It details the role of the ark in the early modern classifications of animals, the relation of the shape of the ark to contemporary ship building, the problem created for the ark by the discoveries of animals in the New World, the story of the dispersal of Noah and his descendants to Europe, Africa, and Asia, and the connection of the Indians of America to Noah and his family.

The Prologue begins by emphasising the importance of the story of Noah as the founder of humanity after the flood in Christianity, Judaism, and Islam. It also indicates that the story of Noah, the flood, and its aftermath had a highly important and much forgotten role, from the seventeenth to the twentieth centuries, in the development of secular thought in an array of modern scholarly disciplines – biology, geology, geography, anthropology, demography, zoology, mythography, religious studies, and even naval engineering. It concludes with brief summaries of the chapters within this volume.

An economy is characterised by a variety of macroeconomic indicators such as gross domestic product (GDP), employment, savings and investment, general prices, interest rates, taxes and government borrowing/debt, banking and finance, exports, imports, and so on. Amongst all, GDP, which captures aggregate production or output of a country, stands out as the most important barometer to measure overall economic activity. Production of goods and services in a country generates commensurate income for various stakeholders engaged in the production process and enables them to buy and consume various goods and services. Economic welfare in a country is assessed by the amount of goods and services produced and consumed by its citizens. In a rich country like the United States or Japan, with higher level of production and income generation, the citizens can afford a high level of standard of living. They enjoy access to nutritious food, quality health care, better air conditioning, automobiles and vacation, and so on. On the contrary, a sizeable number of citizens in poor or low- and middle-income countries lack access to even basic needs like food and safe drinking water, reflecting low standard of living.

The growth theories explain, inter alia, how the rich countries in the world could achieve and sustain their economic progress over a long period of time stretching more than a century, and also why many countries in Africa and Asia have not been able to do so. Particularly, proximate causes are identified in terms of accumulation of capital through mobilisation of savings, population growth supplying labour or workers, and improvement of labour productivity through innovations and technological changes. A more fundamental role is assigned to economic and political institutions.

In the aforementioned process of attaining and sustaining economic prosperity in an economy, banks play a special role. In fact, the very functioning and progress of any modern economy is inconceivable without banks and other entities of the financial system. First, banks are financial intermediaries which generate deposits from the public and utilise the mobilised deposits to provide loans and undertake investments. In this process, banks play a crucial role towards augmentation of savings and efficient allocation of resources for productive investments. Consequently, banks assume a vital role towards achieving and sustaining economic growth in a longer-term perspective.

6.1 Introduction

The facilitating role of banks towards promoting and sustaining prosperity in an economy has already been discussed in the preceding chapters. An analogy can be drawn between the banking sector and nuclear plants. Nuclear power has emerged as a formidable alternative to fossil fuels for meeting energy requirements. It has many advantages in terms of proficiency, reliability, ecofriendly aspects and low cost. However, any accident or mishandling in a nuclear plant can potentially cause severe devastation and loss of life. Similarly, the banking sector promotes economic growth in several ways and acts as a critical channel of the MTM to control inflation and mitigate economic fluctuations. At the same time, the banking business entails inherent risks. If the risks embodied in banking are not contained within reasonable prudential limits, they can severely harm the economy.

Any ordinary business involves risks due to fluctuations in sales, production costs, shortage in availability of raw materials, disruptions in the supply chain, employee unrest, deteriorating physical infrastructure, and so on. But the dimensions, configurations and magnitude of risks in the banking business are much wider than those in any non-financial business. Higher risk in banking is mainly explained using underlying bank-specific features such as information asymmetry in and excessive procyclicality of bank lending, scope for bank runs and contagion, and so on. Details of these aspects are discussed in section 6.2.

Ben S. Bernanke, Nobel laureate for economics in 2022, has highlighted how failure of banks can aggravate a conventional economic crisis (Bernanke, 1981, 1983).

4.1 Introduction

In Chapter 3, we discussed the role of banks in augmenting savings and supporting economic growth in the long-term perspective. In macroeconomics, ‘long-run’ refers to the period in which all prices are flexible. In practice, long-run economic growth and developmental discussion for a country generally cover several decades.

There is another important dimension of economic growth often observed. This is in the form of short-term economic fluctuations. Short run refers to a time period in which the prices of some goods are assumed to be rigid or inflexible. The evolution of Keynesian macroeconomics in the aftermath of the Great Depression of the 1930s highlighted the occurrence of such regular short-term economic fluctuations. It was suggested that there are certain phases in which the economy witnesses rapid growth (boom) followed by periods of economic slowdown (recession). The periodic recurrence of such economic booms and recessions is popularly referred to as the business cycle phenomenon.

The question is why we need to be concerned with short-run economic fluctuations.

Our concerns arise as excessive economic fluctuations can have serious adverse effects on society. During economic downswings, sales, production and employment levels plummet. Most households earn their livelihood by participating in the production process in one form or the other. Fall in production and sales adversely affects the profits of industry and unemployment causes loss of income for households. Consequently, the livelihood and standard of living of people at large suffer. Any social-welfare-maximising government cannot afford serious risks to the livelihood and standard of living of its citizens.

Similarly, periods of economic boom, particularly if driven by rising aggregate spending in the economy as compared to the production capacity, cause high inflation. Inflation is nothing but a tendency of continuous surge in the general prices. With rising prices, people can afford to buy fewer goods and services for a given income.

This chapter focuses on the relationship between the story of Noah and the New Science. It begins with the contemporary discussions about the date of the flood and the calculations about the numbers of people from the time of the flood to the present. It continues with the late seventeenth-century debate about the universality of the flood. The issue of the date of the flood leads also to the problem of fossils and their relation to the flood of Noah, with particular attention to John Woodward’s An Essay Towards a Natural History of the Earth. The chapter concludes with a discussion of how the shifting time scales on the age of the earth during the eighteenth century cast doubt upon the role in the formation of the earth that had traditionally been ascribed to the flood, along with attempts to harmonise the Biblical story with the new age of the earth.

While exploring the historical relationship between the Burdwan fever and agriculture in Burdwan, a district in West Bengal, in connection with my PhD research in the 1990s at Jadavpur University, Kolkata, I was considerably excited and resolved to undertake a project on the history of kala-azar as my postdoctoral studies. I noticed the conflicting comments of contemporary physicians and health personnel on the nature of the Burdwan fever—some referring to it as malaria whereas others naming it kala-azar. Malaria in Bengal by then had already gripped the attention of historical scholarship, and some scholars were engaged in research on various aspects of malaria, including its epidemic episodes and endemicity. The history of kala-azar was rather a neglected field of historical enquiry even though there was abundant material on it. This sparked my interest and attracted my attention. After having completed my PhD, I started exploring the history of kala-azar and wrote a small piece on it towards the end of the 1990s. Subsequently, I undertook it as my postdoctoral project, came into contact with David Arnold, and applied for Commonwealth Fellowship to work with him on this subject. I was selected and was based at the School of Oriental and African Studies (SOAS), London, to pursue my studies during 2002–2003, and thus began the trajectory of my postdoctoral work. I felt honoured to work with Professor Arnold, who was very supportive and generous with suggestions, and inspired me a lot to produce a book based on my work. Thus, the idea of this treatise was conceived way back in the early 2000s. It took a long time to produce this treatise since after gathering information on it in the United Kingdom's libraries and archives, I looked into some additional sources in India. Finally, the baby came out of the womb. I am grateful to Professor Arnold for his advice and assistance in completing the research successfully.

I am greatly indebted to the Commonwealth Scholarship Commission, London, for sponsoring my trip to and supporting my stay in London during 2002–2003, which gave me ample opportunities to use the esteemed libraries and archives in London. This facilitated my research at the British Library, Wellcome Library, London School of Tropical Medicine Library, and the British Medical Association archives in London.

11.1 Introduction

Banks are basically commercial entities and maximising profit is the main objective in the banking business. Profit for banks arises from broadly two sources. The major source is interest income from loans and investments over interest cost on deposits and borrowings, popularly referred to as net interest income (NII). We have observed earlier in this book that deposits constitute the bulk of the liabilities of a bank and loans and investments overwhelmingly dominate a bank's assets. Therefore, NII constitutes the main source of a bank's profit. A bank has to choose a judicious mix of deposits and loans as also appropriately price such products to maximise its NII. The second source of profit for banks is earnings in the form of fees, commissions and charges, and so on.

However, banks cannot ignore the risks involved in various banking products. Generally, higher risk is associated with higher returns. Prudent banking entails containment of overall risks within reasonable limits; otherwise excessive risks may wipe out the entire profit. In exceptional situations, excessive risk may even cause complete collapse of a bank. In view of these aspects, optimising risk-adjusted returns without compromising solvency and liquidity aspects is the ultimate goal in the banking business.

It is important to note that profitability can be maximised through improving banking efficiency and productivity. In banking, productivity is popularly measured in terms of per employee business and profit. This closely resembles the concept of labour productivity used in microeconomics. Higher business per employee reflects higher productivity.