Ketan Parekh Scam in Relation to Global Trust Bank Presented By
Madhup Desai Mehul Jain Nikhil Hiranandani Vijay Nagpal Darshan Sheth Bhuvan Thakkar
Who is Ketan Parekh?
Mr. Ask him how the market is and don't be surprised by a J P Morgan-type answer. Not much is known about the man. We suppose he takes the Wall Street wisdom too seriously – “Get Your Picture on the Cover Of BusinessWeek or Fortune And The End Is Near”. please. "It will fluctuate. He meets people. Ketan Parekh
Ketan Parekh is a Mumbai based share and stock broker. But a recluse he isn't. And Ketan Parekh obviously doesn't want to retire early.
." If you know him well. But there is one cardinal rule: No pictures. He is from a well to do share-brokerage based family. The well-respected trading firm called “Narbheram Harakchand Securities“(NH Securities) which has been a top institutional brokerage firm. including the press. This chartered accountant by training is a down-to-earth man with an extremely sharp mind.
he is also referred to as “MYSTERY MAN “.he will give you a tip too. Ketan Parekh seemed entirely different. barely 48 hours later. But.www.rediff.com)
Global Trust Bank – From Glory To Defeat:-
THOUSANDS of depositors. but in the end you will make big money. Initially. If you are strong-hearted. Though he learnt his trading tricks from the BIG BULL Harshad Mehta. His market style and personality are often compared to Harshad Mehta.
(Ref: . you buy the share and forget it for a while. his background was affluent upper middle class.wikipedia. a new-generation private bank. Although there was general appreciation of the RBI's apparently swift response to the crisis. In most of the articles by newspapers or magazines. their anguish was quelled by the announcement. those with longer memories insist that the central bank's reaction came after years of dithering. They point to the fact that the RBI itself had in the past few years gathered substantial evidence of
.com and www. investors and borrowers across the country were taken by surprise when the Reserve Bank of India (RBI) declared a three-month moratorium on Global Trust Bank. on July 24. India's two major business newspapers call him the Pentafour Bull and the One Man Army in their market gossip columns. You will see some really wild swings. calls him KP or associates him with his firm NH Securities. The market. that the beleaguered bank would be merged with the publicly owned Oriental Bank of Commerce (OBC). with its fancy to cut redundancy.
which went under. reports indicated that diamond traders contributed substantially to the Rs.272 crores registered by GTB in 2003-04. He also hinted that regulatory vigilance may have failed in the past. and while OBC had no non-performing assets GTB's NPAs accounted for almost 20 per cent of its assets. which had only a small presence in South India. other regulatory agencies such as the Securities and Exchange Board of India (SEBI) and the Joint Parliamentary Committee. is reported to have played a key role in mobilizing funds when the bank started its operations.19. Just before the RBI announced the amalgamation of GTB with OBC on July 26. had made pointed references to GTB's malpractices.276 crores.100 crores that was mobilised at the time the Secunderabad-based bank started operations. the Union Finance Minister said that GTB had been "sliding for some time".
. compared to a loss of Rs. Referring to the health of OBC post-merger. They pointed out that the tax breaks reflect at least a notional loss for the public exchequer on account of the caprices of the promoters of the private bank. a former executive at Vysya Bank. Although the top management of the public sector bank said that writing off losses on account of NPAs acquired from GTB would enable it to get tax breaks. Although the RBI appears to have overcome the crisis for the moment. In particular. the public image of the bank was always associated with Ramesh Gelli.861 crores. who was associated with the Asian Development Bank (ADB).mismanagement in the bank. would now be able to grow rapidly in the region. the public sector bank made a net profit of Rs.686 crores. Although the banking license was granted to Jayanta Madhab. Gelli.3. Finance Ministry sources justified it by saying that OBC. Moreover. sceptics have their doubts. The advances made by OBC in 2003-04 amounted to Rs. systemic issues relating to the functioning of private sector banks have been pushed under the carpet. which examined the stock market scam in 2001. GTB commenced operations in 1994. compared to GTB's Rs.
GTB lent more than Rs. The beleaguered bank. actively fuelled the Ketan Parekh-led Bull Run in the stock market between December 2000 and March 2001. Throughout its decade-long existence. Not surprisingly. when it was attempting a merger with UTI Bank (which also attracted controversy). It lent heavily to players in the capital market and when the market crashed the bank's balance sheet suffered a gaping hole because share prices had dropped dramatically. The rest of the issues. in which the lead artist was the stockbroker Ketan Parekh. This was at the expense of minority shareholders. the larger issues relating to bank failures. The bank had been hit by periodic bouts of reckless lending. instead of adopting a more conservative approach to banking. the top management of the bank appears to have concentrated exclusively on generating returns to its key shareholders. depositors and borrowers.In media circles Gelli acquired the reputation of being a "super banker". it is not surprising that GTB was involved in the stock market scam of 2001.800 crores. Much of the lending proved injudicious. In 2001.
. Given these characteristics. one of the key issues that survive the now-dead bank is one relating to a banking institution's relationship to its promoters. were indicative of the permissive regime that the private bank was manipulating to suit the interests of a few. And. Indeed. in particular the dressing up of GTB's accounts detected by the RBI as far back as March 2002 and the role of the management in propping up the share price. particularly private bank failures are tied to the way this question is answered. Should a bank's operations be determined by the sole objective of generating returns to its promoters? It appears that this question played a key role in the fortunes of the bank. Gelli quickly attracted controversy. particularly by forcing it to enter into sharp practices that bordered on the illegal. The initial problems surfaced in 1997-98 when it was revealed that its advances made to small and medium-sized corporates were highly risky.
after announcing the amalgamation of the bank with Oriental Bank of Commerce. would have benefited directly from this because the price of the GTB share would have been a key variable determining the terms of the proposed merger. Managing Director. at the bank's headquarters in Hyderabad on July 26. it must be emphasised. Indeed. For instance. In fact. 400 crores. It is evident that the management preferred the latter course whenever the bank faced problems. the RBI had asked Gelli to step down as the chairman of the bank after revelations before the JPC showed that he had acted in concert with Ketan Parekh. Global Trust Bank. The JPC found that Gelli and other promoters of the bank colluded with Ketan Parekh to push up GTB's share price.Sudhakar Gande. the central bank removed the bank's auditors and made a complaint about the auditor to the Institute for Chartered Accountants of India. during the course of its inspection of GTB's accounts for 2001-02. A bank in trouble could have chosen either to implement a course correction or to indulge in window-dressing. found that GTB's net worth had turned negative. the stink raised
. This was in sharp contrast to the claim of the bank's management that its net worth was about Rs. the RBI. The promoters. Earlier.
Zee Telefilms and Himachal Futuristic Communications Ltd. Gelli managed to re-enter the board in February 2004 but had to resign again when several complaints were made to the RBI about his induction. in turn. GTB's lending to corporate groups was dictated by the logic of the stock market and not the business potential in their sectors of operation.M.P. among them Ketan Parekh-linked companies. The less sympathetic view is that GTB acted as the fulcrum for Ketan Parekh's transactions in the market. would lend money to Ketan Parekh and Parekh. The more charitable view regards GTB as a high-stakes gambler playing recklessly. The lender of funds. There are two versions of GTB's association with Ketan Parekh. But the scheme also had a circular logic. their investment companies. The JPC proceedings revealed the tremendous velocity with which funds were transferred among these entities. GTB. The shares of many companies such as Zee Telefilms and HFCL were Ketan Parekh favourites. However. In fact.
. Tripathi.by the JPC proceedings was so strong that the deal fell through. Reports indicate that Gelli's successor quit after six months because Gelli and his supporters in the bank hampered him. In September 2001. which was bound to collapse at some point. would drive up share prices for these companies. (HFCL). Depositions by bank officials before the JPC confirmed SEBI's finding of diversion of funds lent by GTB to several companies. The chairman. Gelli's son was elected to the bank's board. often within a day. S. the JPC observed that the bank was guilty of not monitoring the end-use of the funds that it lent. told reporters after deposition by GTB's top officials that the bank ought to have acted because JPC members felt there was "definite evidence of misappropriation" of funds. and his network of numerous investment firms had accounts with GTB. while investigating the role of the GTB in the stock scam. This version is backed by the claim that Ketan Parekh's corporate associates.
nearly 16 per cent of GTB shares were offloaded by these investors between June 14 and July 24. the holdings of smaller investors increased from 44 per cent to 51 per cent by the time the bank was declared dead. According to some reports. foreign institutional investors and Overseas Corporate Bodies and Non-Resident Indians. As a result. THE terms of the OBC-GTB amalgamation are such that the existing shareholders of GTB will not get anything as a result of the merger referred to in market parlance as a swap. there was unusual trading activity in GTB shares in the stock market after the announcement. Meanwhile. SEBI has announced that it is examining trade data during the last six months to see whether the activity in the market is indicative of insider trading. However. reports from the market indicated that large entities including promoters. had offloaded their holdings in the GTB scrip in the weeks before the moratorium was declared by the RBI. This was certainly unusual for an institution that was on its last legs. Meanwhile. there are some reports that these holdings could account for almost 60 per cent of the shares. In fact. speculation is rife because it is now known that OBC
200 crores. those outside the loop were the losers. That would be entirely in keeping with the track record of an entity that always surprised its clients. there is already speculation that they could end up being much more.
.gave the RBI its letter of intent in mid-July. The possibility of insider trading in an entity such as GTB is not difficult to fathom. "We have the option open for appeal and we will definitely keep the option. But as it happens always in the stock market.1. If the promoters and the well-connected knew of the impending merger. it is not clear how much of a burden the dead bank will be on OBC. We have received money from the mutual fund and we have duly delivered the shares and the shares were duly registered.hinduonnet. when asked whether he would appeal to the Supreme Court.www." Ketan Parekh told NDTV-Profit channel in an interview.500 crores in GTB. Although the losses are said to be in the region of about Rs.com)
Ketan Parekh’s interview to NDTV – PROFIT
"What we have done is only one transaction." he said. Meanwhile. ordinary investors were being told by the management of its new proposal of offering a stake to a foreign investing entity. However. New Bridge Capital. Beyond that our role was not there in any manner in this transaction. it would explain their exit from the GTB share.1. Obviously. There were reports that the investor was agreeable to investing Rs. those who were in the inside track knew where the bank was headed and quickly dumped their stock.
"The bank has 280 registered brokers as its clientele. it mush have come down. There could be problem if they (the brokers) are not able to build up the margin. There is no deficit.5 per cent in GTB. "Parekh's holding can be a little more than 3. The bank had asked the brokers to replenish the security value of the accounts or pay up the money immediately. Gelli also said that GTB has lent at least Rs 1."
. There no case of any our clients defaulting till date.40 billion at one point of time. GTB has an overall deficit of around Rs 500 million on margins in brokers' accounts. However. "That could be the peak level exposure." GTB's capital market exposure is around Rs 5.com)
Ketan Parekh has nearly 4 per cent in Global Trust Bank: Gelli
Global Trust Bank (GTB) chairman Ramesh Gelli has said that top broker Ketan Parekh holds close to 4 per cent in the bank.05 billion. However. sources said the bank's exposure to the broker was around Rs 1.(Ref:. I am not aware of any other holding (of him) by another means. Gelli said: "Our outstanding are fully secured. All exposures to individual brokers are within the prudential norms. A GTB release said. But so far there is no crisis.www. Subsequently.18 billion to Parekh." he said. Gelli said." This is for the first time that Gelli has admitted that Parekh holds a stake in the bank. According to banking sources.suchetadalal.
2002 in Kolkata……. The volumes again showed a sharp increase on July 6-7. October 30. Volumes in GTB scrip rose on June 7 to more than 4 million share per day from a normal daily volume of a few thousands.com)
Ketan Parekh was later arrested on December 2.Rediff.www. market sources pegged the holding at a much higher level.31 and November 7. Although GTB chairman said Parekh's holding is less than 4 per cent in the bank.
.According to market sources.
(Ref:. Parekh had started taking interest in GTB stock in June-July 2000 to ramp up the price.