The Hindu Business Line : `Decision on GTB taken in public interest'

EVER since it came to light that Oriental Bank of Commerce (OBC) had evinced interest in acquiring and turning around Global Trust Bank (GTB) at least a month before the moratorium was imposed on the Hyderabad-based ailing bank, RBI's action on moratorium was widely criticised in the media.

Concerns were expressed on the subsequent panic among the GTB depositors and shareholders. Many questions were raised on the substantially high volumes being traded in the GTB counter in the last three days when the draft scheme of amalgamation made it clear that there would not be any swapping of shares. In this context, the Secretary (Banking), Mr Narendra S. Sisodia, spoke to Business Line on various concerns. The excerpts from the interview:

What is the rationale behind the Government's decision to impose moratorium on GTB at a juncture when the Government was already in favour of the OBC proposal to revive and turnaround GTB? Have you observed the unusual spurt in the volumes of GTB shares in the last few days?

These are things the regulators look at. The trading in the stock of GTB is being looked at by the Securities and Exchange Board of India. Why they are being traded depends on who the investors are and what sort of assessment they have. I cannot make a comment on behalf of investors. If there were any regulatory issues involved, they would be looked at by the SEBI. But, I can only indicate to you the objective of the moratorium that was placed. The objective is that depositors' interests should be protected. If something goes wrong with GTB, then ICICI Bank can be in trouble, Syndicate Bank can have trouble and Canara Bank can also be in trouble and so on. It is a contagion. It will have cascading effect. It had to be curbed.

What about the fate of the GTB shareholders?

When one invests in a particular entity, it is the responsibility of the investor. . The investor has to see how healthy it is, and when he would want to exit.

How do you justify the timing of the moratorium?

The action has been taken under the Banking Regulation Act and the temporary freeze on the operations is only to ensure the deposits are not at risk. And now a scheme has been prepared and issued as a draft to all the stakeholders. After considering the objections and suggestions, the scheme would be finalised. The last date for sending the objections and suggestions is August 7. The moratorium would be lifted as soon as the process of amalgamation is finalised.

Don't you think that imposing moratorium would lead to panic among the depositors?

No. Not at all. There is no question of any panic. It was a well-considered decision. Where is the panic and who has suffered? There is no panic. In fact, the panic, if any, should have taken place when disturbing reports were available on the bank. There were enough signals that there was something wrong with the bank. Of course, an opportunity has to be given by the RBI to correct those problems. But when the position of a bank deteriorates, the depositors or the shareholders have to take their own decision. Now, when the regulator found that this was becoming into a serious problem and its intervention was necessary, a freeze has to be imposed. Otherwise, there can be a run on the bank. That run has to be prevented.

Don't you think the way decisions were taken appears furtive?

It has to be furtive. You cannot tell people that you are going to put the operations of the bank under moratorium. It cannot be openly discussed. What do you expect? You want the depositors funds to be eroded?

But depositors are not the only stakeholders of the bank. How about protecting the interests of shareholders?

The main stakeholders in a bank really are the depositors. For example, you have a share capital of Rs 300 crore and deposits of Rs 25,000 crore. What is more important? Here, it is the depositors' interests, which are paramount. That is the essential thing of banking. This is a private company. When something goes wrong with the company, whom do you ask? You ask the management. In this case, when the net worth was supposed to have eroded, who takes responsibility? Supposing the Government had not acted and there was a run on the bank, then what would have happened? Shareholders' interest would have been protected? I would say that the Government did everything in the best public interest.

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

Stories in this Section
Timely Nabard credit line for farmers

Foray into global corporate leasing — Srei opens arm in Germany

NPAs: Why the undue anxiety?

Rupee steady; bonds recover

Software for treasury ops

Special discount: Insurance brokers seek compensation

IOB net rises 26 pc in Q1

Rs 50 lakh missing from RBI currency consignment

Birla SunLife to manage CSB's retirement fund

TMB to open two ATMs at Chennai

Indian Bank loans to strengthen school buildings

State Bank of Indore to distribute Franklin Templeton schemes

SBI pays Rs 345-cr dividend to Govt

No decision yet on IFCI merger

`Decision on GTB taken in public interest'

KSCB gets Rs 527-cr credit from Nabard in three years