Money Has Always Mattered – The Hindu BusinessLine

On October 22, 1906, at the gates of Arbuthnot & Co, First Line Beach, Madras, an advertisement announced that the company, which had extensive banking operations, had ceased trading. It was in effect a declaration of insolvency and, in doing so, to ruin a large number of investors, starting with the Governor of Madras, Sir Arthur Lawley. The ensuing investigations and trial 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 History of Penguins in Early 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 flow of income be maintained to finance various activities in the temple and so the money was lent with interest, ranging from 12 to 15 percent per annum. Some time later, it would seem that the temples, rather than managing their money, preferred to hand it over to village loan sharks who accepted their funds as an investment.

Sangam’s poetry, although silent on banking, very clearly portrays the presence of business communities, especially in port cities. International trade goes through barter and it is there that the future banker, then intermediary, is decisive 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 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 Periya Puranam, we find that money lending and banking 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 works of the sixteenth century Amuktamaliadathe story of Andal, King Krishnadeva Raya describes the business community of Madurai —

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! (taken from Sri Krishna Deva Raya, Amuktamalyada 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. As Sudeep Chakravarti 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 lenders have helped the business trade.

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. The Indian Overseas Bank was promoted by the Sir M.Ct. 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 should 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.

Published on

August 12, 2022