Global Trust Bank - The collapse of a bank

Presented by: Darshak Shah Romit Shah Rakesh Patel Rahul Saxena Vivek Pandey

Global Trust Bank

GTB opened its first branch in Secunderabad Andra-pradesh on October 30,1994
Collected Rs. 100crores of deposits on the first day of its operations

Promoters Ramesh Gelli, Jayanta Madhab, Sridhar Subasri

August 14, 2004, GTB was amalgamated with Oriental Bank of Commerce

Rapid Rise of GTB

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 Established more than 500,000 client relationships Present in all major cities, systematically spreading coverage in smaller cities Rated first amongst India Best Banks by Financial Express

Business Model of GTB

Adopted a simple expedient of offering high deposit rates to investors Loans given mainly on the basis of personal guarantee without any collateral security

GTB has spread its higher deposit rates over its lending rates
GTB focused its lending to the small and medium companies, which could be charged higher rate of interest Within SMEs, GTB focused on exporters of garments, diamonds, IT, pharmaceuticals etc and give loans at higher interest rates

First Sign of Trouble

Credit decision process

Allegation of rigging of GTB share price

SEBI prohibited GTB from raising money from capital market In 2000, bank fell short of capital Lend to capital market (Ketan Parekh) 2001-02, it suffered a nearly 60 per cent fall in net profits

Share price- 2001- 25.70

2004 - 3.60

Moratorium by RBI
Moratorium is a permission granted by the RBI to delay the meeting of the obligations It Is done by the govt in public interest , in the interest of depositors and banking system RBI had to take a decision to ensure public deposits were protected Depositors were allowed to only withdraw 10000 from saving bank a/c.

Fall of the bank

Moratorium came as a big blow for the customers They thought they lost all the money Many customers were paralyzed due to withdrawal limit of 10000 Loss of trust, anger and betrayal

SEBI takes action

SEBI asked stock exchanges to disclose the buyers and sellers of GTB shares Ramesh Gellis involvement in ketan parekh securities scam

He gave huge amount of unsecured loans

Lot of manipulations in the balance sheet Net worth had fallen and the capital adequacy ration was negative

Who has to be blamed?

Manipulating banker and the inefficiency of the regulator RBI waited long to take actions even after knowing the issues RBI could have changed the management after the inspection Actions not taken from the beginning by the RBI

RBI itself was fooled by the GTB executives

THANK YOU