ASSIGNMENT : 1

COLLAPSE BANK
GLOBAL TRUST BANK
‘THE BANK THAT WENT
BURST’

SUBMITED TO
STUDY CENTER : BANKEDGE INDIRANAGAR

COURSE TITLE : BPro

SUBMITTED BY
NAME : KM NANDINI PANDEY
ENROLLMENT NO : B1008677
 CONTANT

 Brief history of Indian banking scenario

 Banking reforms in 1990’s
 Introduction to global trust bank
 Financials of global trust bank
 The problem
 Moratorium by RBI
 SEBI intervention
 Countdown to collapse
 Cause of crisis
 GTB-OBC merger
 Post merger scenario
 Conclusions and Learning
Brief history of Indian banking sector

 1949: Enachment of banking regulation act.

 1955: Nationalization of state bank of India.
 1959: Nationalization of SBI subsidiaries.
 1961: Insurance cover extended to deposits.
 1969: Nationlization of 14 major banks.
 1971: Creation of credit guarantee corporation.
 1975: Creation of regional rural banks.
 1980: Nationalization of 7 banks with deposits over 200cr.

Note: After the nationalization of banks, the branches of the

public sector bank in India rose to approximately 800%in
deposits and advances took a huge jump

BANKING SECTOR REFORMS IN

1990’S
 Competition enhancing measures.
 Measures enhancing the role of market force.
 Prudent measures.
 Institutional and legal measures.
 Supervisory measures.
 Technology related measures
 GLOBAL TRUST BANK
 One of the earliest private sector bank in India.
 Promoter: Mr. Ramesh Gelli, Sridhar subasri and Jayant
Madhob.
 First branch: Secundrabad, Andra Pradesh.
 Collected more than 1000 Mn INR in deposit of first day.
 Achieved a quick, Powerful and foolproof system.
 Initial public issue of Rs 1040Mn received subscription of Rs
62.40 Bn from over 1 Mn investors.
 Received rs 1bn of deposits on day 1 , Rs 10bn by the end of
first year and 27bn at the end of the 3 years.
 GTB won best export performance award from gem and
jewelry industry.
 Rated first amongst India best banks by financial express.

THE FAST ULTRA MORDERN AND

COST EFFECTIVE BANKING
SERVICES

“We have aimed allowed to provide a world class product and

best service level to our customers”
Mr. Ramesh Gelli
  275 ATM’s which allowed clients to deposit and withdraw
cash, know the account balance, get mini statement and other
basic features, which nationalized banks lacked.
 Introduced phone banking.
 Core banking services.
 Announced the inception of online banking with its software
Bank Away in 1999.

GLOBAL TRUST BANK’S

FINANCIALS
 After a flying start the bank ran into a loan problems of INR
15,000 mn.
 Its results for the financial year were as follow:
 Deposits INR 69,200 mn
 Advances INR 32,760 mn
 Exposure INR 15,600 mn
 Capital adequacy ratio 0.7%
 Net NPA’s 20%
 Return on assets 3.5%
 Gross NPA INR 11,000mn
90 days provisioning

 Norm NPA INR 12,000mn

 SHARE PRICE OF GBT

MORATORIUM BY RBI
 On RBI application, order of moratorium issued in respect of
GTB on 24 July 2004.
 Moratorium is permission granted by govt. to delay meeting
their obligation for their period.
 During the period, the bank would be permitted to make only
those payments that were specified in the order.
 Withdrawals were not permitted from ATM’s.
 Various restrictions came as a hard blow to 800000 customers
who faced the possibility of losing money.
INVESTIGATION INTO SALE OF
SHARED BY PROMOTERS: SEBI
INTERVENTION
 The promoters had been selling shares after the order
 Girish Gelli, director and son of former chairman sold 849238
shares of the bank.
 In all 40 million shares were sold within 1 week.
 Foreign stake also decreased.
 Bank was probed by RBI, SEBI and joint commission on alleged
stock scam.
 Promoter Gelli was banned from SEBI for conducting any
stock transaction.

COUNTDOWN TO COLLAPSE
 Ramesh Gelli’s involvement in Ketan Parekh scam.
 GTB’s balance sheet shows a net worth of INR40.40 million and
a profit of INR 400 million . However RBI’s own inspection
revealed that the net worth was negative.
 Large variance between inspected and auditor’s figures
 Statutory audit done
 Balance sheet showed loss whereas there had been an
operating profit.
  RBI found that the bank’s net worth had fallen and CAR turned
negative.
 The bank was advised to raise fresh capital.

THE CAUSE OF CRISES

 Ramesh Gelli refused to take the blame for the failure of
GTB.
 Of GTB’s total NPA if INR 15000 million, priority sectors such
as agriculture and small industries accounted for 22.5%, the
bulk GTB’s NPA of 77.5% was form non priority sector.
 In two years between 1999-2000 and 2000-01 the banks
capital market exposure went up to 30% of its total assets.
 When the market collapsed , the values of securities came
down drastically and the bank could not recover from this.

PROPOSAL TO MERGE GTB WITH OBC

 RBI has to protect customers.
 After many approaches for mergers, RBI settled for OBC for
merger.
 OBC will take care of the 15000 million of bad debts.
 In return would get 104 branches and 800000 customers.

SYNERGY BETWEEN GTB AND OBC

 North based OBC got 104 branches in southern part of the
country
  OBC’s CMD Mr. B.D. Narang was confident in rec0vering the
bad debts of GTB
 All the processes at the GTB would remain same including the
structure and employees.
 Software and technologies used were same which was a hope
of harmony after the merger.

GTB AND OCB RESULTS FOR 2003-04

WHO IS TO BE BLAIMED FOR GTB

FIASCO
 Many lost their hard-earned money with GTB
 No reason to blame who invested with the bank
 RBI’s policies were questioned , why did RBI waited so long
while it knew about the murky on-goings
GTB IS NOW OBC
 Government of India approved the merger and it became
effective from 14 august 2004
 Customers of GTB
-Old customers would now operate their account as OBC now
onwards
-Several arrangements were made to ensure the same services
being offered to them
 Shareholders of GTB
-Shareholders will receive payments on pro-rata basis after clearing
the liabilities of GBT
-B.D. Narang was confident in recovering the bad loan of GBT
-GBT was south based bank and thus will provide extra cover in the
south for OBC

POST MERGER SCENARIO

 According to OBC, internal investigation revealed that GTB had
taken high credit exposures in certain accounts. On the basis of
internal investigation OBC filed a complaints on the following
grounds:
-Against united software for having caused the wrongful loss of INR
67.68 Mn
-Against Ashok Advani erstwhile GTB for cheating the bank to tune
INR 150mn
 -Against petro products for tuning 784.1 mn , against shonk
technologies for wrongful loss of 384.9mn and against pearl
distilleries ltd. Wrongful loss of INR 102.8mn.

CONCLUSION
 The bank run into the colossal losses because of several role
players enacted to suit their convenience , which ultimately led
to the suffering foe small, unwary and gullible investors who
had to pay a heavy price.
 The unethical practice of the promoters and the lethargic
attitude of the regulators by not reacting on time all seem to
have together brought down the bank and its investors.

LEARNING
 Acting in a way to suit their personal interest can result in
the collapse of an organization.
 Clumsy attitude of the regulator resulted in the downfall of
the banking sector of the country.
THANK YOU
THE END