On October 22, 1906, the gates of Arbuthnot & Co, First Line Beach, Madras carried an announcement to the effect that the company, which had extensive banking operations, had ceased business. It was in effect declaring insolvency and with that it brought to ruin a large number of investors, starting with the Governor of Madras, Sir Arthur Lawley.
The investigations and trials that followed are not relevant here. But it did lead Indians into considering whether British-run banks were what they made themselves out to be. If so, why should Indians not start their own banks? Among the first to so come up was the aptly-named Indian Bank, with noted lawyer V Krishnaswami Iyer as its prime mover. But the bulk of the funding came from those who had been in the business of money for centuries — a mix of Gujarathi Seths, Tamil Nagarathars and Telugu Arya Vaisyas. Banking was not new to us.
Romila Thapar, in the PenguinHistory of Early India writes of Buddhist monasteries having been wealthy enough to lend money for village assemblies and similar bodies. Thereafter, when the temples came to be built they carried forward this tradition. It was necessary argues Thapar, that the flow of income was kept up to finance various activities in the temple and so money was lent on interest, ranging from 12 to 15 per cent per annum. Sometime later it would appear that the temples, rather than managing their money, preferred to pass them on to village moneylenders who accepted their funds as investment.
Overseas trade in Sangam Age
Sangam poetry, though silent on banking, very clearly depicts the presence of business communities, especially in port cities. International trade was through barter and it was here the future banker, then a middleman, was crucial in establishing a fair exchange between goods. The Pattinapalai (verses 206-212) speaks of the attributes of the business community –
Like the sun at noon
Their stance is balanced
Fearing loss of reputation
They speak and act with caution
They compare and contrast
And offer no less than what they are given
The Chola economy flourished on trade and conquest and the funds from one went to finance the other. By the 12 th century, from Periya Puranam, we find money lending and banking was firmly established. The story of Thirugnanasambandar in this monumental work has reference to a merchant of Vaippur who loaned money.
More or less coaeval with this time frame is the life of Pattinathar, the saint venerated by the Nagarathar community. Central to the tale is the episode of financing a long sea voyage to far off lands to earn money by trade. Gradually, financiers came to hold the purse strings of the economy and all major decisions such as war or projects for public welfare were taken only in consultation with the bankers. In the 16 th century work Amuktamalyada, the story of Andal, King Krishnadeva Raya describes the business community of Madurai thus –
In that city, all the businessmen, without any hesitation
Give many donations by pouring water from their palms on to streets!
Hence all the pillars in the street appear greenish , like sprouting creepers!
In this manner, while treading the path of dharma,
Day by day, they became wealthier,
And their flag-like fame shadows the clouds in the skies!
(Taken from Sri Krishna Deva Raya Amuktamalyada by Srinivas Sistla)
The arrival of the Europeans only served to highlight the importance of native financiers. In the initial years, when the various East India Companies were trading entities, they suffered long periods of cash crunches and depended heavily on the local bankers. These men often combined together as consortiums to lend money, to be repaid with interest as and when the ships laden with specie arrived. Gradually they became the confidantes of the Europeans.
Funding British might
As Sudeep Chakravarti depicts so vividly in his Plassey, Robert Clive could have never met with success had it not been for the banking firm of the Jagat Seths. Similarly, one of the key reasons that Delhi eventually fell in 1858, a year into the First War of Independence, was the tacit support the British got from the Hindu financiers of Chandni Chowk.
In Chennai, the Nagarathars, the Arya Vysyas, the Gujaratis and the Marwaris are commemorated forever in the area known as Sowcarpet. This was from where the sahukars or money lenders assisted the Company’s trade.
And when the Company and later the British moved into Burma and the Far East, the Nagarathars were with them, financing the taming of the forest and expansion of agriculture. As Sir Harcourt Butler acknowledged, had it not been for the Chettiars, British expansion in the Far East may have never happened. That brought the community much prosperity and they turned to creating modern banks and industries.
Indian’s own banks
The Indian Overseas Bank was promoted by the Sir MCt Muthiah Chettiar family in 1937. But this did not mean that British banks were on the wane. They catered to their exclusively British clientele. The three Presidencies had their own banks and in 1913, it was first suggested they merge.
The matter dragged till 1921 when the Imperial Bank of India was formed by their amalgamation. But as TT Krishnamachari was to acidly recall in the 1950s, its sole purpose was to emasculate Indian businesses. The same was true of other British banks too. The list of those whose loan applications were spurned include 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 about many changes, including the nationalisation of the Imperial Bank in 1952, and changing its name to the State Bank of India. And it had to change its ways – to suit a new polity with new aims. But the fundamental tenets of banking have remained unchanged over the centuries.
(The writer is a Chennai-based historian)