Financial Daily from THE HINDU group of publications
Sunday, Jul 25, 2004
Money & Banking - Private Banks
Finally, RBI loses trust in GTB
Mumbai , July 24
THE net worth of Global Trust Bank (GTB) was completely eroded by March 2002. It, however, took nearly two years for the Reserve Bank of India to take a decisive step after it first found there was something wrong with GTB, promoted by Mr Ramesh Gelli in 1994.
The 104-branch (in March 2003) GTB under Mr Gelli was known as an aggressive bank that liberally lent money to stockbrokers treading the risky edge of the capital market. Reckless lending and inadequate growth in good assets and income to cover the bad ones contributed to a heap of non-performing assets. Mr Gelli, accused of connivance with brokers, had to quit the board following RBI's pressure.
According to the GTB balance sheet, on March 31, 2003, it had deposits of Rs 6,920 crore, advances of Rs 3,276 crore, and gross NPAs of Rs 915 crore. However, an inspection by the RBI found that the NPAs were much higher than admitted by GTB. According to Ms Usha Thorat, Executive Director, RBI, the bank's CRAR (Capital to risk-weighted asset ratio) on that date was a negative 0.07 per cent.
Over an 18-month period up to March 2002, GTB courted a string of controversies. It was involved in a failed merger attempt with UTI Bank during late 2000 and early 2001. GTB's alleged involvement in the 2001 stock scam was probed by the Securities and Exchange Board of India, the RBI, and a Joint Parliamentary Committee.
Mr C.R. Muralidharan, Chief General Manager, RBI, told presspersons that the regulator first noticed discrepancy in GTB's accounts for the year ended March 31, 2002. While it had reported a net worth of Rs 400 crore and a net profit of Rs 40 crore, RBI inspectors found the net worth was negative.
An independent auditor confirmed RBI's fears and the regulator put restrictions on certain advances, premature withdrawal of certain deposits and capital market exposures.
Mr Muralidharan said the RBI began checking the bank's accounts on a monthly basis and asked it to change its auditor. It was given time until September 2003 to publish annual accounts. The bank reported poor results, which the RBI justified in a press release saying GTB continued to make operating profit, but the negative results were due to higher provisioning and attempts to clean its balance sheet.
Even though the bank claimed a marginally positive net worth in March 2003, RBI inspectors discovered that it had eroded further and its capital adequacy ratio had become negative. Asked how the bank's performance missed the RBI's eye in spite of it monitoring the bank on a monthly basis, Ms Thorat said the monthly `inspection was only on certain parameters' that did not show up the entire picture. "The real picture was known only in the RBI's yearly inspection. We were hoping that they would be able to recover NPAs," she said.
GTB was asked, in November 2003, to infuse fresh funds and restore capital adequacy ratio to the prudential norm of 9 per cent and indicate a time-bound programme for it, Mr Muralidharan said.
Ms Thorat said that the bank had approached it with several proposals but the July one was the first concrete plan that it had submitted.
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