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Building a bank, the MCt. way



MCt. M. Chidambaram Chettyar

Members of this Tamil community are known to be conservative. A trip down memory lane and a peep into the life of one illustrious member of this community who lived in the momentous first half of the last century, however, reveal a different story. His was the story of a visionary who was several steps ahead of most other Indians. He truly lived in the future, as current events testify. That was MCt. M. Chidambaram Chettyar from the famed Nattukottai clan of Tamil Nadu for you. The MCt. M. Chidambaram Trust in Chennai has chronicled his contributions to society in various walks of life in a book titled The Unfi nished Journey.

MCt., as he was popularly known, was a true pioneer well ahead of his times. Beginning with United India Life Insurance, he ventured into general insurance in the form of United India Fire and General Insurance Company Ltd., and a successful bank _ the Indian Overseas Bank. He also set up Travancore Rayons, India's first synthetic fibre unit, in Kerala. His concern for Indians settled abroad and his insistence on professionalism have a lesson or two for contemporary bankers. Here are some excerpts from Chapter VI of the book dealing with Indian Overseas Bank.

AMONG THE indigenous bankers, the Chettiars became pre-eminent and by the middle of the 19th Century, Chettiar capital started migrating to Ceylon, Burma and further east, to expand their business in commodity trading. But while the Chettiars were active in South and Southeast Asia during this period banking facilities in their homeland, South India, continued to be inadequate.

* **

In the last quarter of 1906, Madras was hit by the worst financial crisis the city was ever to suffer. Of the three best-known British commercial names in 19th Century Madras, one crashed, a second had to be resurrected by a distress sale and the third had to be bailed out by a benevolent benefactor! The agency house to close shop, Arbuthnot's, was considered the soundest of the three. Parry's may have been the earliest of them and Binny's founders may have had the oldest associations with Madras, but it was Arbuthnot & Co., established in 1810, that was the city's strongest commercial organisation in the 19th Century.

<167,2p,1>Sir George Gough Arbuthnot was the head of Arbuthnot & Co. at the time of the crash. He was a member of the Madras Legislative Council and a prominent figure in Madras society at the time. Sir George's social eminence had not a little to do with the travails of the firm. He brought in numerous deposits but used them for speculation and personal advantage. Much money was spent on searching for gold in the Nilgiris and Anamalais, on investment in American railway projects, on new South African gold fields and in the plantation crops of the West Indies. Arbuthnot & Co. was drained dry. When P. Macfadyen, senior partner of P. Macfadyen & Co., London, Arbuthnot's correspondent and associate in England, and an old Madras hand, committed suicide on October 20, 1906, the crisis broke. Both firms petitioned the courts on the 22nd to be declared insolvent. The auditors appointed by the Official Assignee estimated Arbuthnot & Co.'s liabilities at Rs. 27 million and its assets at only Rs. 7 million! The firm had 2,300 operating accounts in India with balances of Rs. 2.75 million and about 4000 fixed deposits with claims amounting to over Rs. 25 million. With the assets being described as being only on paper and "beyond all belief, worthless, which crumble to dust when touched," there was no way to meet the claims of the depositors, who were almost any and everyone in Madras who had savings or some money to invest.

In the aftermath of the crash, several things happened. Sir Arthur Lawley, Governor of Madras and himself a victim of the bankrupt company, launched a public fund to raise money to help the weaker sections who had lost everything in Arbuthnot's. Amongst the scores of letters in The Hindu on the scandal, there was one from Dewan Bahadur R. Raghunatha Rao, a distinguished administrator and a prominent citizen, that suggested the starting of an Indian bank "now that European integrity and honesty (have come) under a cloud." And the most constructive thing to come out of the scandal was when a young vakil, V. Krishnaswamy Iyer, later to become an eminent lawyer and High Court Judge but at the time just making his way up and acting on behalf of several Arbuthnot creditors, took his cue from the letter that appeared in The Hindu and set out with a will to promote an Indian bank. He got together eight other prominent citizens of Madras who also felt, in the words of the historian of the bank, R.K. Seshadri, "that a bank which depended on the savings of those in the South had to be incorporated locally and managed by the Indians who were locally known and respected". Not one of the promoters was a Nagarathar though they were to provide a substantial part of the funding.

* * *

With the cooperative bank's focus on the cooperative movement, the capital of the Presidency, the chief city of the South, sorely lacked an Indian joint-stock bank. It was to remedy this that Krishnaswamy Iyer and his co-promoters sent out their first circular on November 2, 1906, inviting the public's views on the possibility of starting "a Native Bank in Madras".

The encouraging response they received prompted them to call a meeting at Krishnaswamy Iyer's house. At this meeting it was decided to go ahead with plans to establish an Indian bank. What resulted was the Indian Bank Limited, which was registered on March 5, 1907 and opened its doors for business on August 15th.

From their very first circular it was clear that the promoters were relying on "the indigenous bankers" of South India, the Nattukottai Chettiars, for finance and the business acumen to found the bank and make a success of it. In the event, though there were only three Chettiars among the 22 who attended the historic meeting at the Mahajana Sabha Hall, the community rallied around its leaders and helped finance the bank and run it successfully till nationalisation changed bank administration.

Although they were themselves affluent and influential, the promoters realised the need for the new institution to have the support of every section of the community. The merchants and traders at the end of the 19th Century were more closely linked to British commercial interests than in the past and less dependent on the Government. Orderly conditions in the South attracted Gujarati and Rajasthani families from the North. And a large, hard-working, talented and vocal middle class, dependent on the professions and the services, had been created.

The prevailing cosmopolitan atmosphere and the Swadeshi movement ensured that the response to the capital issue by the local Indian company would be more broad-based than in an earlier generation, but it was the Nattukottai Chettiars on whom Krishnaswamy Iyer and his fellow promoters depended for the greater part of the capital creation.

The first directors of the bank were Lodd Govind Doss, Rm.M.St. Chidambaram Chettiar, Dewan Bahadur S.Rm.M. Ramaswamy Chettiar (uncle of Sir M.Ct. Muthiah Chettiar, and who the next year made way for his younger brother, Annamalai Chettiar, later the Rajah of Chettinad), T. Seetharama Chetty, Khan Bahadur Mohamed Abdul Azeez Badshah Saheb, who was the honorary Turkish Consul in Madras, Murledoss Ramdoss, V. Krishnaswamy Iyer, Dewan Bahadur M. Adinarayana Iyah and C. P. Ramaswamy Aiyar. Other directors who joined the Board later the same year were Dewan Bahadur Govindoss Chatoorbhoojadoss, Nalam Lakhsmi Kantaguru and P.M.A. Muthiah Chettiar.

M.Ct. Muthiah Chettiar became a director of the bank in 1914 and remained one till his death when his son MCt succeeded him in 1930 and served on the board till 1940 and then again from 1945 to 1949 when his son, M.Ct. Muthiah, became a director. Differences of opinion with the board led to Muthiah quitting it in 1950. With that ended the MCt family's association with helping steer the Indian Bank.

* * *

The Indian Overseas Bank, though thought of by some as a `Chettiar bank', adopted from its very inception an approach quite different to the Indian Bank's in matters of business, customers and staffing. Not only did it see helping Indians overseas as a priority, but at home it began to look at India's growing industrial sector, in which Chettiars had played only a small role, as an area where its presence should be. And in matters of recruitment, it looked at professionalism more objectively. MCt's guiding hand and his choice of the people at the top, assured the IOB of a high professional reputation — and consequent success.

* * *

Indian Overseas Bank commenced operations simultaneously in Madras, Karaikudi, the chief town of Chettinad, and Rangoon on February 10, 1937. By 1938, branches had also been established in the major towns near Chettinad, namely, Sivaganga, Pudukottai and Devakottai. And in October 1938, the Kuala Lumpur branch was opened. Within a decade, the bank had established branches in Bombay, Calcutta and throughout the South, coast to coast, as well as overseas, in Kuala Lumpur, Singapore, Colombo, Penang, Ipoh, Malacca, Hong Kong and Bangkok. Links were established with Chase National Bank of the City of New York, Midland Bank in the U.K., and Bank of New South Wales, Sydney, Australia, which served as foreign agencies.

* * *

MCt presided over IOB with distinction, building it up brick by brick. Starting with a capital of Rs. 2.5 million, its growth made it necessary to increase its capital to Rs. 5 million by 1945 and Rs. 10 million in 1951.

It was the bank that put the country's name on the map of banking in the Far East, lending assistance and prestige to hundreds and thousands of Indians abroad. In 1969, 15 years after MCt's death, IOB became one of the youngest among the 14 banks nationalised. It was a possibility he had envisaged by the dawn of the 1950s as India headed down the road to socialism.

He undoubtedly played a major role in drafting the Southern India Chamber of Commerce's response to Gulzarilal Nanda's proposals to the Congress Working Committee to consider "making a beginning at nationalised banking and insurance" on the alleged ground that the Government lacked control over their surpluses.

(Courtesy: MCt. M. Chidambaram Trust.)

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