How a bank branch in Bombay helped establish a financial relationship between Japan and India

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To understand just how deep the trade ties between India and Japan run, just take a look at the newspapers of the first decades of the 20th century. Back then, there was a steady flow of trade and people back and forth between countries. The front pages of newspapers published the schedule of steamships from Japan carrying their fair share of Indian passengers to Japan’s new free ports such as Nagasaki, Kanagawa, Okinawa and Yokohama. On their journey to India, these ships carried large numbers of Japanese seeking to take advantage of the growing trade between their country and British India.

The same newspapers that listed steamboat arrivals and departures also had regular updates on banks operating in Bombay. In October 1920, there were two Japanese banks with branches in India’s financial capital – Sumitomo Bank, whose branch in Churchgate was managed by J Sato, and Yokohama Specie Bank, or YSB, which had a branch in Hornby Road (now Dadabhai Naoroji Road) and listed N Otsuka as his manager. Unlike its fellow Japanese bank, YSB also had a branch in Calcutta.

The banks’ newspaper listings mention, among other details, the subscribed and paid-up capital of the banks as well as their reserve funds.

In 1920, YSB offered an interest rate of 2% per annum for current accounts which had a daily balance of between Rs 1,000 and Rs 1 lakh. Newspaper listings indicated that the terms of fixed deposits for a period of one year or more could be checked on request. “Each bank exchange activity description processed”, a list in The India time said. The Japanese bank, which opened as an agency in Bombay in 1894, was a real branch, offering a full range of services in the 1920s. But its main clientele was neither wealthy Indians nor British citizens. residing in the country. His main purpose in the country was to finance the burgeoning bilateral trade in ginned cotton and textiles between India and Japan.

First forays

Although Japan and India have cultural and spiritual ties that date back to at least the 8th century CE, the former remained a feudal and isolated country until the Meiji era, which began in 1868. It was during the Meiji era that Japan experienced rapid modernization, industrialization and opening up to foreign trade.

The country’s slow integration into the world economy began with the import of cotton and wool products from Europe as well as the export of tea and silk to the West. The growth of Japan’s foreign trade led it to enter the international banking system. When contact with India was restored in the 1870s, British banks in India were among the first to facilitate Japanese trade with the rest of the world.

In 1871, Japan adopted the gold standard and pegged the yen to gold. For trade in East Asia, he used silver coins. In 1880, YSB was established with partial support from the Japanese government to manage the country’s foreign exchange operations. Seven years later, it was allowed to open overseas branches and became an important player in Japan’s growing foreign trade.

The headquarters of the Yokohama Specie Bank (now the Kanagawa Prefectural Museum of Cultural History). Credit: 663highland/Wikimedia Commons [CC BY 2.5]

YSB established an agency in Shanghai in 1893, which was responsible for collecting yen-denominated invoices that were drawn for products exported from China to Japan. Invoices were sent to Japan and payable there. The following year, it set up agencies in Calcutta and Bombay, both of which later became branches.

cotton trade

China was Japan’s main supplier of raw cotton at the start of the Meiji era, but within a few decades India took over. In the 1890s, when YSB opened its branches in India, there was a great demand for Indian ginned cotton in Japan. The ginning process involves putting the picked cotton through a gin (cotton machine), which separates the cotton fibers from their seeds and allows for greater productivity than manually separating the cotton.

At that time, it was “insufficient institutional infrastructure for Japanese trading companies to raise funds to purchase raw cotton from India or to write the required warrants”, Japanese scholar Takeshi Nishimura wrote in a chapter of the book. The origins of international banking in Asia: the 19th and 20th centuries. “Such reliance on foreign trading companies and traders, and foreign exchange banks such as HSBC and Chartered Bank, was common until the financial and monetary infrastructure needed to support the companies was in place. commercial and Japanese traders.”

Until the beginning of the 20th century, there was a strong trade imbalance between Japan and India which favored the latter. This resulted in a one-sided currency balance for the bank. “YSB has set up a fund for the exchange (Rs 5,00,000) at the Bombay branch,” Nishimura wrote. “As a result, most Japanese trading companies transferred foreign transactions to YSB to raise funds to quickly purchase raw cotton.”



Former headquarters of Sumitomo Bank in Nakanoshima, Osaka. Credit: NKNS/Wikimedia Commons [CC BY-SA 3.0]

Japanese buyers used to come to Bombay and then travel inside what is now Maharashtra and Gujarat to source ginned cotton. At that time, the only mode of exchange was silver rupees issued by the Indian government. “However, when Japanese staff assigned to the Bombay branch of a Japanese trading company went to the country to purchase cotton, the large amount of silver rupees needed was too heavy for them to carry to the cotton growing areas,” Nishimura wrote. “Thus, the methods of purchasing raw cotton in Bombay differed between cases where Japanese personnel traveled directly to cotton-growing areas and those where trading companies used foreign intermediaries with close ties to local cotton merchants. .”

When Japanese buyers traveled to rural areas, they bought kapas (unginned cotton) from local merchants and then hired local workers to gin the cotton and transport it to Bombay, according to Nishimura. Buyers paid cotton growers and ginners with a check-like document issued by lenders. These check-like documents could be cashed for silver rupees. The lenders would then be repaid with drafts from the YSB. Such a financial arrangement worked almost perfectly.

Key intermediary

The trade imbalance between the countries narrowed when textiles made in Japan were exported to India. Japanese clothing was competitively priced and exported to many of the same markets that British textiles reached, leading to a bitter price and trade war. “This competition peaked in the Indian cotton textile market, where not only did the booming Japanese textile industry take on the steadily declining British textile industry, but the two entered into direct competition and vigorous with the newly protected textile industry and the booming Indian textile industry,” Fredie A Mehta wrote in the February 1957 edition of Review of Economics and Statistics, published by MIT Press. “Clearly, the competition was not centered solely on price considerations; and a variety of factors ranging from nationalism to bilateralism, from stark differences in tariffs to stark differences in the quality of competing products, were clearly at work.

YSB financed the export of Japanese textiles to India and acted as a key intermediary between Indian buyers in Bombay and Japanese exporters. “By establishing a branch in Bombay, YSB was able to create a bilateral financial relationship between Japan and India involving flows of raw cotton and cotton textiles,” Nishimura wrote.

Decline after World War II

By the 1940s, YSB had become one of the largest exchange banks in the world and had an international network that extended to more than 40 cities on five continents, such as Sydney, Manila, Vladivostok, Honolulu , Buenos Aires, London, Hamburg, Rio de Janeiro and San Francisco.

The bank, however, developed a notorious reputation for being the paymaster for the Imperial Japanese Army, which committed atrocities and war crimes in China and other parts of Asia during World War II. Indeed, he largely financed the Japanese war effort. After Japan’s surrender at the end of the war, YSB merged with Bank of Tokyo, which later merged with other banks to form MUFG Bank, one of Japan’s megabanks.

British authorities seized YSB’s assets in India during the war. The bank restarted its operations in Bombay as Bank of Tokyo in 1953. In postwar Japan, Bombay lost its importance as a major trading partner. The war put an end to the once thriving Japanese business community in the city, and the era of air transport made steamboat services from Japan to Bombay superfluous.

Ajay Kamalakaran is a writer, primarily based in Mumbai. He is a Kalpalata Fellow for Historical and Heritage Writings for 2022

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