Merger to hit GTB's shareholders most

Tuesday, 27 July 2004, 07:00 Hrs
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HYDERABAD: The proposed merger of the crisis-ridden Global Trust Bank (GTB) with Oriental Bank of Commerce (OBC) promises to bail out its depositors and employees but it could adversely hit the bank's shareholders.

GTB managing director Sudhakar Gande Monday told reporters that a separate pool would be created and if any recovery is made from non-performing assets (NPAs) in future it would be passed onto shareholders up to a period of 12 years.

There are 160,000 investors in GTB while NPAs amount to 15 billion ($323.97 million).

The bank has an equity base of 1.21 billion. Of this, Indian promoters hold 19.40 percent and Foreign Institutional Investors (FIIs) own 4.9 percent. While private corporate bodies have 19 percent, the public holding is around 44.88 percent.

GTB's founder Ramesh Gelli, who holds about 20 percent shares, said a meeting of select investors would be held here on Tuesday to discuss the scheme of amalgamation. He said the stand of shareholders would be decided at the meeting.

The Reserve Bank of India has sought objections to the scheme of amalgamation by Aug 7.

Gelli, however, welcomed the merger saying it was the right decision taken at the right time.

With the merger GTB will cease to exist.

Gelli had founded the bank in 1994 but resigned as chairman and managing director in 2001 after the bank figured in a stock market scam.

GTB has about one million depositors in its 104 branches in 34 cities all over the country. The bank has deposits of about 65 billion ($1.40 billion).

Complimenting the RBI for the decision of merger, Gande said the quick action by the regulator ensured that the franchise value of GTB was not affected.

He said the merger would secure the deposits of GTB and protect its 1,400 employees by absorbing them in the OBC. He said there would be no salary cut and the pay structure would be retained at the same level for three years.

He said the OBC would bring customer service and crisis management expertise to the table.

He said while one bank was a success in public sector, the other was a pioneer in private banking.

"I am sure that four to five years down it will become a great bank probably the real market leader," he said.

Gande said there was a technological compatibility in the merger as both the banks used the technology platform "Pinnacle" developed by Infosys.

When asked about the disadvantage of the merger, he said it was GTB losing its name in the new entity.

He recalled that he joined GTB over two years back when the problem in the bank was one year old. He said the bank did its best in managing recoveries by recovering 7 billion NPAs and collaterals of 3 billion.

He said he also did his job to bring a foreign investor, New Bridge, to infuse capital in the bank. He said the capital outlay of the proposal submitted to the RBI was of the order of $325 million. New Bridge offered to bring $225 million on its own. However, RBI rejected the proposal as the terms and conditions were not acceptable to it.

"We managed a difficult bank, managed the recoveries well and added 200,000 customers. This gives a sense of satisfaction," he said.

"We made the bank an attractive proposition both for foreign and domestic investors," he said.

"Had we not moved in the right direction this bank would have been liquidated," he said in reply to a suggestion that the bank did nothing for two years to come out of its crisis.

While refusing to divulge his future plans, he said he was now working. He would work to implement moratorium order. He said all efforts would be minimise the three-month period of moratorium.

Gande denied that OBC was in touch with GTB for amalgamation before moratorium was announced and said it was decision taken by RBI. He also refused to comment on reports that auditors misled RBI on the balance sheet.

Replying to a question about salary accounts in GTB, he said talks were on with RBI to relax moratorium in case of these accounts so that employees of corporate customers could draw their salaries. He said there was also a proposal to transfer these accounts to other banks.

Source: IANS
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