The Hindu Business Line : Trust lost

SEEN ANYWAY, THE moratorium on Global Trust Bank (GTB) is poor advertisement for private banks and the regulatory finesse of the Reserve Bank of India. Since 2001, when the RBI told Mr Ramesh Gelli to step down as the chief executive of the bank (Mr Gelli thinks otherwise, though), GTB had become a suspect player in the financial market. Matters did not mend at GTB even after the RBI brought in Mr R. S. Hugar as chairman and also gave substantial liquidity support.

Thus, though for the year ended March 31, 2002, the bank reported a net profit of Rs 40 crore, the annual inspection report of the central bank, in September 2002, found it negative. For a double check, the RBI got an external auditor to scan the books; the RBI's findings were confirmed in February 2003. That brought the bank under the central bank's direction on certain advances, capital market exposure, premature withdrawal of deposits; the bank was tracked on a monthly basis. GTB was advised to change its auditors and given time till September 30, 2003 to publish the accounts for the year ended March 31, 2003. On September 30, 2003, the RBI issued a press release welcoming "the decision taken by the GTB and its board of directors to clean up the balance-sheet," as the bank had made an operating profit. But within some 10 months, GTB goes under the weight of unprovided non-performing assets (NPAs), a moratorium is declared, and the RBI is talking of amalgamating it with a sound, private or public sector, bank.

When in 1994 Mr Ramesh Gelli took the help of the Mumbai-based diamond trade to raise funds to set up GTB, and linked the pay-back for the promoters to the share market prices of the bank, the RBI could have denied it a banking licence. The Ketan Parekh scam in 2001 saw the bank investing imprudently in shares and GTB seemingly was done in. Depositors protesting outside GTB branches in Mumbai have a point in that they are being penalised when the RBI could have taken action in 2002 by scrapping the board under the Banking Regulation and RBI Acts. In placing a moratorium, the RBI has created a needless liquidity crisis for GTB's clients. Some think the RBI could have got rid of the board even last week, appointed fresh faces, kept the counters open, promised helpful lines of credit and worked the bank to profit before placing it on offer for a good taker.

In Centurion Bank, which was in a similar mess some time ago, the RBI intervened by appointing Mr V. Janakiraman, managing director of State Bank of India, as the chief executive with the clear brief to prune NPAs. This was done before new owners were inducted. In a late action, GTB did submit to the RBI a proposal from Newbridge Capital but this was rejected considering the onerous conditions placed by the funder. Any new bidder will insist on a scrutiny of the balance-sheet and agree to a take-over sans the losses or get the RBI to show regulatory forbearance. In turn, the RBI seems prepared, in public interest, to waive the proposed 5 per cent and 10 per cent equity caps on acquisitions to bale out GTB. But that could take a while.

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