Global Trust Bank collapsed in 2004 due to unethical practices of its promoters including connections to a stock scam, misleading financial reports, and excessive risky lending. The Reserve Bank of India was criticized for its slow response despite knowing of problems as early as 2001. GTB was eventually merged with Oriental Bank of Commerce after its net worth turned negative and capital adequacy ratio fell, in an effort by regulators to protect depositors. However, the failure of GTB also highlighted shortcomings in banking regulation and oversight in India at the time.

1. GLOBAL TRUST BANK :
THE BANK THAT WENT
BURST
Vivek Sharma (42)
Mark Gulati (39)
Harshit Mishra (52)
Tushar Roy Monga(49)
Suraj Kashyap(40)
TEAM 10

2. Flow Of Presentation
• Brief History of Indian banking Scenario.
• Banking reforms in 1990’s.
• Introduction to global trust bank.
• Financials of global trust bank.
• The Problems.
• Moratorium By RBI.
• SEBI intervention.
• Countdown to collapse.
• Causes of crisis.
• GTB- OBC merger.
• Post merger scenario.
• Questions.
• Conclusions & Learnings.
• References

3. Brief history of Indian Banking Sector
• 1949: Enactment of Banking Regulation Act.
• 1955: Nationalization of State Bank of India.
• 1959: Nationalization of SBI subsidiaries.
• 1961: Insurance cover extended to deposits.
• 1969: Nationalization of 14 major banks.
• 1971: Creation of credit guarantee corporation.
• 1975: Creation of regional rural banks.
• 1980: Nationalization of seven banks with deposits over 200 crore.
Note :After the nationalization of banks, the branches of the public
sector bank India rose to approximately 800% in deposits and
advances took a huge jump by 11,000%.
Source : www.capitaline.com
Accessed on : 09/02/2015 1:30 pm.

4. Banking Sector Reforms in 1990’s
• Competition Enhancing Measures.
• Measures Enhancing the role of Market Force.
• Prudent Measures.
• Institutional and Legal Measures.
• Supervisory Measures.
• Technology related measures.
Source: http://www.people.hbs.edu/scole/webfiles/other/01-bankreform-
2004.pdf
Accessed on 10/02/2015 5:30 pm

5. Global Trust Bank
• One of the earliest private sector bank in India.
• Promoter : Mr. Ramesh Gelli, Sridhar Subasri, and Jayant Madhob.
• First Branch Secundrabad, Andra pradesh.
• Collected more than 1000 Mn. INR In deposit in the first day.
• Achieved a quick, Powerful and foolproof system.
• Initial Public Issue of RS 1040mn received subscriptions of Rs 62.40bn from over 1
mn investors.
• Received Rs 1bn of deposits on day 1, Rs 10bn by the end of first year and Rs 27bn
at the end of 3 years .
• GTB won Best Export Performance Award from the Gem and Jewelry industry
• Rated first amongst India Best Banks by Financial Express
Source : http://ramkey.expertscolumn.com/article/yet-another-bank-collapses-india
Accessed on : 09/02/2015 4:15 pm

6. The fast Ultra Modern and Cost effective
banking services
“We have aimed to provide a world class products and best service
level to our customers “
Mr. Ramesh Gelli
• 275 ATMs which allowed clients to deposit and withdraw cash, know
the account balance, get mini statement and other basic features,
which nationalized banks lacked.
• Introduced phone banking.
• Core Banking services.
• Announced the inception of online banking with its software
BankAway in 1999.

7. Global Trust Bank’s Financials
• After a flying start the bank ran into a loan problems of INR 15,000
Mn.
• Its results for the Financial year were as follow :
• Deposits INR 69,200 Mn
• Advances INR 32,760 Mn
• Exposure INR 15,600 Mn
• Capital Adequacy ratio 0.7 %
• Net NPA’s 20 %
• Return on assets 3.5 %
• Gross NPA INR 11,000 Mn
90 days provisioning
• Norm NPA INR 12,000 Mn
Source : www.rbi.org.in
Accessed on 10/02/2015 2 : 00 pm

8. Share Price of GTB
0
10
20
30
40
50
60
70
80
share price
1995 96 97 98 99 2000 01 02 03
Source : http://www.banknetindia.com/board/817.html
Accessed on 10/02/2015 2 : 00 pm

9. Moratorium By RBI
• On RBI application, order of moratorium issued in respect of
GTB on 24 July 2004
• Moratorium is permission granted by Govt. to delay meeting
their obligations for their period.
• During the period, the bank would be permitted to make only
those payments that were specified in the order.
• Withdrawals were not permitted from ATM’s .
• Various restrictions came as a hard blow to 800000
customers who faced the possibility of losing money.
Source : Fernando A.C. Accsessed on 10th Feb 2015

10. INVESTIGATION INTO SALE OF
SHARED BY PROMOTERS : SEBI
INTERVENTION
• The promoters had been selling shares after the order
• Girish Gelli, director and son of former chairman sold 849238 shares of the bank.
• In all 40 million shares were sold within 1 week.
• Foreign stake also decreased.
• Bank was probed by RBI,SEBI and joint commission on alleged stock scam
• Promoter Gelli was banned from SEBI for conducting any stock transaction
Source : Fernando A.C. Accsessed on 10th Feb 2015

11. COUNTDOWN TO COLLAPSE
• Ramesh Gelli’s involvement in Ketan Parekh Scam.
• GTB’s balance sheet shows a net worth of INR40.04 million and a
profit of INR 400million.However RBI’s own inspection revealed that
the net worth was negative.
• Large variance between inspected and auditor’s figures
• Statutory audit done
• Balance sheet showed loss whereas there had been an operating
profit.
• RBI found that the bank’s net worth had fallen and CAR turned
negative.
• The bank was advised to raise fresh capital.
Source : Fernando A.C. Accsessed on 10th Feb 2015

12. The cause of crises
• Ramesh Gelli refused to take the blame for the failure of
GTB.
• Of GTB’s total NPA if INR 15000 million, priority sectors
such as agriculture and small industries accounted for 22.5
percent, the bulk of GTB’s NPA of 77.5 percent was from
non priority sector.
• In two years between 1999-2000 and 2000-01 the banks
capital market exposure went up to 30 percent of its total
assets.
• When the market collapsed, the valus of securities came
down drastically and the bank could not recover from this.

13. Proposal to Merge GTB with OBC
• RBI has to Protect Customers
• After many approaches for mergers, RBI settled for OBC for merger
• OBC will take care of the 15,000 million of bad debts
• In return would get 104 branches & 8,00,000 customers
Source : Fernando A.C. Accsessed on 10th Feb 2015

14. Synergy Between GTB & OBC
• North based OBC got 104 branches in Southern part of the country
• OBC’s CMD Mr. B.D. Narang was confident in recovering the bad
debts of GTB
• All the processes at the GTB would remain same including the
structure and emplyoees
• Software and technologies used were same which was a hope of
harmony after the merger
Source : Fernando A.C. Accsessed on 10th Feb 2015

15. GTB & OBC results for 2003-04
Particulars GTB OBC Combined
Advances 32.76 156.77 189.53
Investments 26.5 147.8 174.3
Deposits 69.21 298.09 367.3
Net profit -2.73 4.57 ----
Gross NPA 9.16 11.46 20.62
Net NPA 6.48 2.25 8.73
Gross NPA
(per cent)
25.8 6.9 10.8
Net NPA (per
cent)
19.8 1.4 4.6
Branches
(nos)
87 989 1076
Staff (nos) 1,314 13,507 -----
Capital
adequacy
ratio
0.0 14.0 12.2

16. Who is to be Blamed for GTB fiasco
• Many lost their hard-earned money with GTB
• No reason to blame who invested with the bank
• RBI’s policies were questioned, why did RBI waited so long while it
knew about the murky on-goings
Source : Fernando A.C. Accsessed on 10th Feb 2015

17. GTB is now OBC
• Government of India approved the merger and it became effective
from 14th August 2004.
• Customers of GTB
– Old customers would now operate their account as account of OBC now
onwards.
– Several arrangements were made to ensure the same services being offered to
them.
• Shareholders of GTB
– Shareholders will receive payments on pro-rata basis after clearing the liabilities
of GTB
– B.D. Narang was confident in recovering the bad loans of GTB
– GTB was south based bank and thus will provide a extra cover in the south for
OBC
Source : Fernando A.C. Accsessed on 10th Feb 2015

18. Post Merger scenario
• According to OBC , internal investigation revealed that GTB had
taken high credit exposures in certain accounts. On the basis of
internal investigation OBC filed a complaints on the following grounds
:
• Against Unitel software for having caused the wrongful loss of INR 67.68
Mn.
• Against Ashok Advani erstwhile GTB for cheating the Bank to tune INR 150
Mn.
• Against Petro energy Products for tuning 784.1 Mn, against Shonk
Technologies for wrongful loss of 384.9 Mn and Against Pearl Distilleries
Ltd. wrongful loss of INR 102.8 Mn.
Source : Fernando A.C. Accsessed on 10th Feb 2015

19. Questions-1
• The collapse of GTB should be attributed not only to the lack of ethics
and avariciousness of its promoters, but also to the lack of competence
and alacrity of the regulators. Would you agree ? Explain your stand.
• The RBI didn't do much to remove Gelli's influence from the bank, or at
least nothing that was visible to outsiders.
• The RBI was content to write to the ICAI.
• In December 2002, after it found prima facie evidence that the promoters
of GTB were in cahoots with Ketan Parekh to jack up the prices of the
bank's scrip -- this is why GTB's merger with UTI Bank was put off –SEBI
decided to freeze the GTB shares held by these people/firms for a period
of 18 months
• Clearly there's a lot more than meets the eye in the GTB case and, since
the finance minister has gone on record to say there were regulatory
lapses, a fuller public inquiry is called for.
Source : Fernando A.C. Accsessed on 10th Feb 2015

20. Questions-2
• From the hindsight of GTB’s ultimate failure, trace its emergence as
the most tech savvy brand among banks in India.
• Portraying as a symbol of technology-savvy banking wizard is not
going to work when your bases are build on un-ethical practices.
• Though GTB was a pioneer in bring new software technology,
opening a large no of ATM and branches, and good front office
customer service but it played with the trust of 8lacs customers.
• So the tech was of no use.

21. Questions-3
• Explain the causes that contributed to the ultimate
collapse of GTB
• Funded scamsters like Ketan Parekh
• Allegations of rigging of GTB prices
• Merger with UTI bank called off
• SEBI prohibited GTB from raising money
• GTB ultimately fell to its lowest level.
• In 2000, Bank fell short of Capital.
• 2001-02, it suffered a nearly 60 per cent fall in net profits.
• Share price- 2001- 25.70
2004 - 3.60
Source : Fernando A.C. Accsessed on 10th Feb 2015

22. Questions-4
• Comment : ‘ The failure of GTB is also the failure of the
banking regulatory system in the country
• Yes. Connection with Ketan Parekh was found in 2001 stock
scam, RBI did replaced Gelli but failed to address fundamental
problem.
• The RBI could have moved against GTB in 2002 when it found
the problem.
• Financial misleading was confirmed in Feb 2003, but RBI gave
time to GTB to publish it financial results for FY03 and then
welcomed its move to clean to clean but balance sheet.
• After that just in 10 months RBI changed its position and
placed GTB under moratorium of 3 months.

23. Conclusion
• The bank ran into the colossal losses because of several role players
enacted to suit their convenience, which ultimately led to the suffering
for small, unwary and gullible investors who had to pay a heavy price.
• The unethical practices of the promoters and the lethargic attitude of
the regulators by not reacting on time all seems to have together
brought down the bank and its investors

24. Learnings
• Acting in a way to suit their personal interest can result in
the collapse of an organization.
• Clumsy attitude of the regulator resulted in the downfall of
the banking sector of the country.

25. Refrences
• http://archives.digitaltoday.in/businesstoday/22031998/cf.html
• http://www.banknetindia.com/board/817.html
• http://wap.business-standard.com/article/specials/sebi-to-prosecute-
5-gtb-directors-for-insider-trading-198031201082_1.html
• http://expressindia.indianexpress.com/fe/daily/19980717/19855054.ht
ml
• http://www.frontline.in/static/html/fl2117/stories/20040827003502800.
htm
• http://www.clds.cn/english/news/show.aspx?newsID=3803
• http://ramkey.expertscolumn.com/article/yet-another-bank-collapses-
india
• www.sebi.gov.in/cms/sebi_data/attachdocs/1379572440984.pdf