amalgamation of Global Trust Bank with UTI and

Oriental Bank of Commerce

Made by:
Gunjan
INTRODUCTION
GTB was a private bank promoted by Ramesh Gelli, a
leading banking professional, in the early 90s under
the government's new policy of liberalization and
privatization in the financial sector. 
Since its inception GTB was aggressive in its banking
style.
It lent large sums to stock market players. In principle
there is nothing wrong in doing so. But banks that do
this type of lending generally have excellent risk
control systems in place.
On July 24th 2004, the central government, on the
request of the banker's bank the Reserved Bank of India,
issued three months moratorium on Global Trust Bank
(GTB), which will last till October 23rd 2004 in the
interest of public and depositors. 
The RBI also set a withdrawal limit of Rs. 10,000 for the
depositors.
It created chaos in the public because failure of each
financial institution brings doubt in the mind of common
depositors who generally centralize all their earnings in
single bank.
The bank's net loss for the year stood at Rs 812.38 crore
as compared to Rs 272.70 crore for the financial year
ending March 31, 2003.
The accumulated loss for the financial year exceeded
the capital, reserves and surplus by Rs 810.10 crore.
UTI Bank-Global Trust merger: Confirmed uncertainty
Friday, March 16, 2001
The merger of UTI Bank and Global Trust Bank
appears set to be mired in more uncertainty. The swap
ratio announced earlier appears set for revision if the
merger goes through. There is big question mark on
this aspect too.
UTI Bank has asked for a second valuation to be
carried out in the light of new information regarding
Global Trust Bank. In the wake of this development,
the Global Trust Bank stock may continue to exhibit
price weakness. - BL Research Bureau
“The boards agree to recommend to shareholders a
swap ratio of nine shares of UTI Bank to four shares of
Global Trust Bank” i.e., 2.25:1. Analysts felt that the
swap ratio was in line with their expectations.
However, the proposed merger soon ran into
problems. Before the merger was officially announced,
the counters of UTI Bank and GTB at the Bombay
Stock Exchange (BSE) witnessed huge volumes and a
sizeable rise in prices.
PROBLEMS
Problems of the bank stem mainly from its very large
quantum of Non Performimg Assets (NPA, the assets
which do not generate revenues) accumulated over a
period of time.
Consequently, higher provisioning for the same took a
toll on its net worth, thus adversely impacting the
capital adequacy of the bank. The bank had a large net
loss in the financial year 2003 mainly due to large
provisioning for its NPAs.
FAILURE
The failure of GTB was result of unavailability of such system
and the ultimate effect was a huge pile up of bad debts.
 There was a change at the top - the promoter was sidelined
and professionals were brought in. This has not worked and
the bank went down.
Two years back, Gelli was seen manipulating the stock
markets in league with rogue broker, Ketan Parekh. Ketan
Parekh in 2001 lured the bank into the share market. That's
when the bank lent aggressively to brokers, diamond traders
disregarding prudential norms laid down by the RBI, to
which every bank has to abide.
ROLE
 Role and responsibilities of RBI Reserve Bank of India
announced the merger of GTB with Oriental Bank of
Commerce as a damage control measure and to reduce
the panic level of the common depositor.
The role of Securities and Exchange Board of India
(SEBI) was also shoddy as it put off the proposed
merger of GTB and UTI and froze the GTB shares hold
by UTI and Ketan Parekh.
CURRENT SCENARIO
 After the amalgamation, the OBC will have the foremost
task of retaining the best employees of GTB as more than
250 people already have left since they got the sniff of the
crisis.
The only problem with the OBC is the significant
difference between the pay structure between two banks
and the RBI's guidelines says that the amalgamation
should not affect the salaries of GTB employees.
The other banks like ICICI, Centurion, etc., are trying to
woo GTB customers by offering loans at easier terms and
conditions.
INFERENCE
The failure of any public financial institution always creates ripple in the
investor's mind.
It also shocks the people's confidence on such institutions and also creates
doubt in mind over the role of regulatory bodies.
 A retail investor always should distribute his/her savings in more than one
bank so the failure could have minimum impact.
The investors should always look such investment scheme with doubt,
which gives return more than market rate.
In most of the cases it is seen that these types of schemes as the first step of
future troubles.
 There should be some kind of mergers or associations of small banks and
cooperative financial bodies under the supervision of a regulatory body so
that it could bring some kind of confidence in the minds of retail investors.
MERGER IS CALLED OFF
In mid March 2001, it became clear that the proposed merger of
UTI Bank with GTB might not come through, as the SEBI
preliminary investigation report found manipulation and rigging
in the share price of GTB prior to the merger announcement.
Another SEBI official hinted that the investigation revealed that
the manipulation in the GTB scrip “was motivated and done
with the help of the bank's senior management team”. SEBI's
findings had not only questioned the merger proposal but also
opened a Pandora's box that may put the management in a major
jam. Sources added that the final investigation was also looking
at the shareholding pattern of GTB and the major beneficiaries
from the swap ratio.
uncomfortable working with UTI Bank in the light of
allegations of price
Questioning with Swap Ratio
The SEBI probe.
Valuation.
Reserve Bank of India's scheme of amalgamation of Global Trust Bank with
Oriental Bank of Commerce

Global Trust Bank Ltd., (GTB) was placed under an

Order of Moratorium on July 24, 2004.
The option available with the Reserve Bank was to
compulsory merger under section 45 of the Banking
Regulation Act, 1949
Oriental Bank of Commerce (OBC) interest was
examined by the Reserve Bank of India keeping in
view its financial parameters, its retail network and its
synergies as well as strategic advantages
Taking into account the interests of the millions of
depositors of GTB, as well as the bank’s strengths and
weaknesses, the Reserve Bank prepared following draft
scheme of amalgamation of GTB with OBC.
The Government of India has sanctioned the scheme
for amalgamation of the Global Trust Bank Ltd. with
the Oriental Bank of Commerce. The amalgamation
came into force on August 14, 2004.
THANK YOU