On October 22, 1906, at the gates of Arbuthnot & Co, First Line Beach, Madras, an announcement announced that the company, which had extensive banking operations, had ceased trading. It was in fact a declaration of insolvency, which led to the ruin of a large number of investors, starting with the governor of Madras, Sir Arthur Lawley.
The ensuing investigations and trials are irrelevant here. But it made Indians wonder if the British-run banks were what they claimed to be. If so, why wouldn’t Indians set up their own banks? Among the first to appear was the aptly named Indian Bank, with famed lawyer V Krishnaswami Iyer as the main driver. But the bulk of the funding came from those who had been in the silver business for centuries – a mixture of Gujarathi Seths, Tamil Nagarathars and Telugu Arya Vaisyas. Banking was not new to us.
Romila Thapar, in the penguinHistory of ancient India writes of Buddhist monasteries having been wealthy enough to lend money for village assemblies and similar bodies. Subsequently, when the temples were built, they carried on this tradition. It was necessary, argues Thapar, that the revenue stream be maintained to finance various activities in the temple and that the money be lent with interest, ranging from 12 to 15% per annum. Some time later, it would seem that the temples, rather than managing their money, preferred to pass it on to the village usurers who accepted their funds as an investment.
Overseas trade in the Sangam age
Sangam’s poetry, although silent on banking, very clearly depicts the presence of business communities, especially in port cities. International trade was done by barter and it was here that the future banker, then intermediary, was crucial in establishing a fair exchange between goods. The pattinapalai (verses 206-212) talks about the attributes of the business community –
Like the sun at noon
Their position is balanced
Afraid of losing his reputation
They speak and act cautiously
They compare and contrast
And don’t offer anything less than what they’re given
The Chola economy thrived on trade and conquest and funds from one went to fund the other. By the 12 e century, of Periya Puranam, we find that the money lending and the bank were firmly established. The story of Thirugnanasambandar in this monumental work refers to a merchant from Vaippur who lent money.
More or less coaeval with this period is the life of Pattinathar, the saint venerated by the Nagarathar community. At the center of the story is the episode of financing a long sea voyage to distant lands to earn money through trade. Gradually the financiers came to hold the purse strings of the economy and all important decisions such as war or public welfare projects were only made in consultation with the bankers. In the 16 e job of the century Amuktamaliadathe story of Andal, King Krishnadeva Raya describes the business community of Madurai thus –
In this city, all businessmen, without hesitation
Make lots of donations by pouring water from their palms into the streets!
So all the pillars in the street look greenish, like growing vines!
In this way, while walking the path of dharma,
Day by day they got richer,
And their flag-like fame darkens the clouds in the sky!
(From Sri Krishna Deva Raya Amuktamaliada by Srinivas Sistla)
The arrival of Europeans only underscored the importance of indigenous financiers. During the early years, when the various East Indian companies were commercial entities, they suffered long periods of cash shortages and relied heavily on local bankers. These men often banded together in consortia to lend money, to be repaid with interest as ships laden with specie arrived. Gradually, they became the confidants of Europeans.
Financing British Power
As Sudeep Chakravarti so vividly describes in his Plassey, Robert Clive could never have met with success without the Jagat Seth banking company. Similarly, one of the main reasons why Delhi finally fell in 1858, a year after the start of the First War of Independence, was the tacit support the British obtained from the Hindu financiers of Chandni Chowk.
In Chennai, Nagarathars, Arya Vysyas, Gujaratis and Marwaris are forever commemorated in the area known as Sowcarpet. It was from where the sahukars or money lenders helped the trade of the Company.
And when the Company and later the British settled in Burma and the Far East, the Nagarathars were with them, financing the taming of the forest and the expansion of agriculture. As Sir Harcourt Butler acknowledged, without the Chettiars, British expansion into the Far East might never have happened. This brought a lot of prosperity to the community and they turned to the establishment of modern banks and industries.
India’s own banks
The Indian Overseas Bank was promoted by the Sir MCt Muthiah Chettiar family in 1937. But that did not mean that British banks were on the decline. They catered to their exclusively British clientele. The three Presidencies had their own banks and in 1913 it was first suggested that they merge.
The matter dragged on until 1921 when the Imperial Bank of India was formed by their merger. But as TT Krishnamachari was to recall acidly in the 1950s, his only aim was to emasculate Indian companies. The same was true for other British banks. The list of those whose loan applications have been rejected includes S Anantharamakrishnan and TV Sundram Iyengar. Then, in 1935, the country got its own financial governing body – the Reserve Bank of India. On its board was a healthy mix of Indians and Europeans – times were changing.
Independence brought many changes, including the nationalization of the Imperial Bank in 1952 and the change of its name to State Bank of India. And he had to change his ways – to adapt to a new policy with new goals. But the fundamental principles of banking have remained unchanged over the centuries.
(The author is a Chennai-based historian)
August 14, 2022