The Hindu Business Line : RBI creates liquidity crisis for GTB customers

AT some point in his life, Mr Ramesh Gelli fancied becoming India's top banker and the opportunity came in 1993 when the RBI allowed the private sector to set up banks. Mr Gelli put in a joint application with Mr Jayant Madhab and Global Trust Bank started operations in 1994. In terms of technology and customer service, it today ranks high in any listing.

Standing under a Sunday monsoon downpour at the Churchgate branch of GTB , a broken depositor said: "I never had any problem with this bank. I hold all my funds in this bank and their service has been excellent. On Saturday, the RBI order ruined me as till October 23, I cannot do any business. Is this fair?"

Mr Gelli will be proud of the praise though not of the happenings since around May 2001 when RBI tripped his fancy run as Chairman and Managing Director of the bank. Some draw parallels between Mr Gelli, who was consumed by the Ketan Parekh scam and the late B. Ratnakar of Canara Bank, chewed up by the Harshad Mehta scandal.

Mr Gelli had tied up some equity funds (1.5 lakh shares at Rs 10 per share) with the associates of Megalo Investment and Leasing Private Ltd., Pancharatna, near Opera House, Mumbai. The promoters linked payment (principal and interest) to Megalo with share market prices and the MoU (dated July 21, 1994) notes, "in the event, the average market price of the said shares on the due date is less than Rs 30 the interest would be 22 per cent per annum." Further, "no interest would be payable if the average market price of the said shares on the due date is more than Rs 55." The promoters stood to gain from keeping GTB share prices at a high and were running an assured return scheme.

The RBI should have been aware of the ploy but went ahead and granted a banking licence. Business started and GTB did become an aggressive lender by sometimes stretching the source of funds.

Mr Ketan Parekh in 2001 lured the bank into the share market and by 2002, the financial markets were turning wary of GTB. Sometime in June 2001, Mr R.S. Hugar was inducted by the RBI as the chief executive of the bank but seemingly matters were not on the mend.

For the year ending March 31, 2002, the audited balance sheet showed a profit of Rs 40 crore while in September 2002, the annual inspection report of the RBI reported negative net worth, a fact, confirmed by an external auditor in February 2003. It is hard to believe auditors, who are members of the Institute of Chartered Accountants of India (ICAI), appending their valued names to suspect numbers.

The RBI has taken up the issue with the ICAI but that will not remove public doubts over audited bank balance sheets. Auditors were changed on the advice of RBI and a monthly monitoring of GTB by the RBI was put in place.

For the year ended March 31, 2003, the GTB came out with its results on September 30, 2003, and an RBI press note of September 30, 2003, says: "The just announced audited financial results of GTB for the year ended 2003-03 indicate that the present management had made special efforts in recovery of non-performing assets relating to the previous years and have also made necessary provisions in accordance with RBI guidelines. The RBI has noted that even though the financial statements show an overall loss, the bank has made an operating profit for 2002-03. The RBI welcomes the decision taken by the GTB and its board of directors to clean up the balance sheet."

On July 24, GTB is put under moratorium by the RBI. That many think is an outworn strategy. Even on July 24, the RBI could have scrapped the board, appointed a fresh board, arranged lines of credit to keep GTB going.

Instead, it has created a liquidity crisis for the GTB clientele.

The RBI had adopted the gambit in the case of Centurion Bank, not so long ago.

Private banks may look at GTB only after toting up the NPAs placed at well over Rs 1,000 crore. NewBridge Capital was keen on GTB on its terms.

Unconfirmed reports have it that they were keen on management, staggered provisioning and reporting more to their parent regulator outside the country instead of the RBI. The RBI said no.

Among public sector banks, the SBI has the strongest balance sheet to absorb GTB. If banking is a matter of trust, it has gone scarce.

More Stories on : Private Banks | Private Banks

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
India Inc pays highest taxes in Third World

Collateral-free loan up to Rs 7.50 lakh for students: IBA

Higher borrowings loom large over bond market

GTB's inherent strengths outweigh its NPAs: Gande

RBI creates liquidity crisis for GTB customers

GTB clients fume at RBI's sudden move

Demat, locker operations allowed