Global Trust Bank (GTB) collapsed in 2004 due to severe financial mismanagement and its involvement in the 2001 Ketan Parekh stock market scam. The bank had high non-performing assets, negative net worth, and had breached prudent lending norms by heavily lending to stock market-related entities. The Reserve Bank of India placed a moratorium on GTB's operations and merged it with Oriental Bank of Commerce to ensure its survival, but this left GTB shareholders with nothing. Questions were raised about the responsibility of GTB promoters and regulators, as well as the treatment of shareholders during the collapse.

1. GLOBAL TRUST
BANK FAILURE
A K S H AY K U L K A R N I
A K H I L N A S I M
B H A S K A R G H O S E
K A R T I K M A N I K TA L A
M E G H N A S H E T T Y
N I K H I L J A I N

2. CONTENT
• History of Indian Banking
• Banking reforms of 1990's
• Introduction
• Financials
• The Scam
• Regulatory Actions
• Countdown to collapse
• Effects on Shareholders
• Questions Raised
• Responsibility
• Conclusion
• Takeaways

3. HISTORY OF INDIAN BANKING
• The First Banks in India: Bank of Hindustan (1770) and General Bank of India (1786) both closed down
after some years of operations
• Reserve Bank of India came into effect on 1st April 1935 (by RBI act 1934)
• Largest and Oldest bank (still in function) : State Bank of India
• How it came about :
Bank of Calcutta (1806) Bank of Bengal (1809) -one of the 3 presidency banks
Merged into
Imperial bank of India (1921) Bank of Bombay Bank of Madras
After independence (1840) (1843)
State Bank of India (1955)
• Followed by two rounds of Nationalization of Banks in 1969 and 1980

4. BANKING REFORMS OF 90’S
• In the early 1990s, the government embarked on a policy of liberalization, licensing a
small number of Private Banks.
• These came to be known as New Generation tech-savvy banks, and included Global
Trust Bank, UTI Bank (since renamed Axis Bank), ICICI Bank and HDFC Bank.
• This move, along with the rapid growth in the Indian economy, revitalized the
banking sector in India, which has seen rapid growth with strong contribution from
all the three sectors of banks, namely government banks, Private banks and Foreign
banks.

5. INTRODUCTION
• Global Trust Bank was one of the earliest private sector banks in India founded in 1994
• Founders - Ramesh Gelli, Sridar Subasri and Jayant Madhob
• First branch opened at Secunderabad, Andhra Pradesh
• Well known for its technology based innovations and responsive services
• Received ₹ 1 Bn in deposits on day 1, ₹ 10 bn by end of first year and ₹ 27 Bn at end of 3
years
• They had a customer attractive business model such as high deposit rates, no collateral
requirements for loans, flexible timings

6. FINANCIALS
As of March 31, 2003
• Deposits : Rs 6920.91 crores
• Advances : Rs 3276 crores
• Gross NPA : Rs 915.82 crores
• Capital market exposure : Rs156 crores.
• Capital adequacy ratio : 0.7%

7. THE SCAM…
• GTB was involved in the stock market scam of 2001, that the stock broker Ketan Parekh ran
• It lent heavily to him and related parties which were speculating in the stock market & tried
manipulating their stock prices
• Misleading books of accounts
• Did this as they had plans for merger with UTI bank which would make them very strong in
the banking sector
• Increase in the stock prices would have helped them increase their valuations
• When the market crashed the bank suffered extensive losses

8. REGULATORY ACTIONS
• 24 July 2004 - RBI 3 month moratorium on the operations of the GTB due to negative net
worth & mounting NPAs
• RBI said don't panic, money is safe, it's only a moratorium & not a closure
• 26th July - 11.20 AM Government announced merging GTB with Oriental Bank of Commerce
(OBC), ensuring its survival.
• India has been creating the history of merging failed banks with bigger (Government) one’s
• B.D. Narang, OBC's CMD, said merger allows his bank to expand its operations in the South
• GTB’s White Knight, New Bridge Capital gave offers to acquire the bank as it had experience
in turning banks around but was denied

9. CONTINUED…
• RBI's swift response to the crisis was appreciated, but sources said in February 2000, an
Investors' Grievances Forum urged both the RBI & SEBI to look into bank’s operations
• RBI even gathered substantial evidence of mismanagement in the bank
• Nothing happened until the Ketan Parekh scam broke out in early 2001 & not surprisingly
showed that GTB was involved in it
• Fitch gave lowest rating to bank in 2003, while other agencies claiming bank to bounce back &
also bank promised to infuse new capital
• Even when RBI & the Joint Parliamentary Committee was set up to probe the Ketan Parekh
scam somehow Ramesh Gelli was exonerated by them

10. COUNTDOWN TO COLLAPSE
Some actions/events which are the main reasons for collapse of the bank include
• Involvement of Ramesh Gelli in Ketan Parekh stock market scam
• RBI did find mismanagement of funds around 2001 only, but nothing was done
• Differences between balance sheet and audited nos.
• Breach of prudent lending norms, huge lending to stock market related entities
• Talks by promoters to raise fresh capital
• Rising NPA levels of bank

11. EFFECTS ON SHAREHOLDERS
• RBI amalgamated Global trust Bank with Oriental Bank Of Commerce leaving GTB
shareholders empty handed
• Small investors could not settle even after the merger announcement
• People had doubt on deal as OBC was most efficient bank at the time
• OBC witnessed sharp volatility on the stock market
• OBC filed the corporate action form with the depositories and the shares of the erstwhile
Global Trust Bank were extinguished

12. QUESTIONS RAISED
• Public shareholders have been treated pretty shabbily
• FII’s had been selling shares of GTB before the any public announcement making only
retailers suffer
• OBC CMD Narang commented that he has been talking to RBI of possible merger for 3
months
• SEBI announcement of examining trade data wasn’t of use after Narang’s comment
• It took a mere 48 hours for the RBI to order the merger
• RBI was keen to protect stakeholders but equity shareholders got nothing

13. RESPONIBILITY?
• Ramesh Gelli refused to take the blame for the failure of GTB
• Bulk of GTB’s total NPA of INR 15000 million, were from non priority sector creating doubt
on lending norms being followed
• In two years between 1999-2000 and 2000-01 the bank’s capital market exposure went up
to 30% of its total assets
• Market crash reduced the values of securities drastically & the bank could not recover from
this

14. CONCLUSION
• The bank ran into the losses because of several players acting for own convenience
• This led to the sufferings for small, unwary and gullible investors & had to pay a heavy
price
• Unethical practices of the promoters & dull attitude of regulators brought down the bank
and its investors

15. TAKEAWAYS
• Publicizing the directions given to the banks by the regulator
• Measures like Prompt Corrective Actions are at high level today
• Banks should cover all the major incidences in annual reports compulsorily
• RBI owes it to depositors, borrowers and investors should take immediate actions unlike
this case

16. THANK
YOU