July 26: Beleaguered Global Trust Bank (GTB) will be merged with Delhi-based Oriental Bank of Commerce.
The Reserve Bank of India (RBI) cleared the proposal for the merger in order to protect the interests of the 9 lakh customers of GTB who found themselves in a jam after the central bank imposed a three-month moratorium that capped withdrawals at a measly Rs 10,000 per depositor.
In its draft scheme, the RBI has invited objections and suggestions on the proposed merger till August 7. The date for the merger will be announced after the government clears it. The moratorium on payments will end after the merger. “In any case, the moratorium will stay till August 7,” RBI executive director Usha Thorat said.
Last Saturday, RBI had announced a moratorium on Hyderabad-based GTB that was scheduled to end on October 23. The moratorium was imposed when GTB failed to come up with a restructuring plan acceptable to the RBI after running up losses that wiped out its networth.
Finance minister P. Chidambaram today reassured depositors that more steps would be taken before the moratorium ends. “I believe the deposits are reasonably safe,” he told reporters. Banking secretary . S. Sisodia said, “All private banks had been put under vigilance.”
Thorat said there would be no share swap arrangement for GTB shareholders when the bank is amalgamated with OBC. Moreover, GTB’s equity capital and reserves would be adjusted against its non-performing assets (NPAs or bad debts).
“The RBI had found us a suitor in a jiffy,” Sudhakar Gande, managing director of GTB, told reporters in Hyderabad.
Gande, who was on deputation from the RBI, said his assignment with GTB had come to an end almost nine months ahead of schedule. “I had come with a mission to set it right. Now, I leave with the relief that it has grown into a bigger entity.”
Meanwhile, former GTB chairman Ramesh Gelli is planning a meeting of major shareholders tomorrow. His aides indicate that the meeting might be held in Delhi or Mumbai. Gelli was not available for comment.
GTB has an equity capital of Rs 125 crore. Asked whether the shareholders in the bank would be able to recover their investments, Gande said, “They will have to wait for 12 years till the NPAs are liquidated.”
“GTB has bad debts of Rs 700 crore and a collateral of Rs 300 crore. The non-recoverable bad debts amount to Rs 400 crore,” a bank official said.
Thorat said the merger with OBC — which had set its sights on GTB earlier — was approved because of the synergies that existed between the two banks.
Shares of GTB today slumped 20 per cent to Rs 10.54 when it hit the circuit breaker that automatically stopped trading in the scrip. Oriental Bank gained 2 per cent at Rs 268.10.
OBC has around 1,000 branches and Rs 41,000 crore in assets while GTB has 9 lakh customers spread over 104 branches and assets worth Rs 6,960 crore.
“There are a lot of synergies between the two banks and it will definitely give us a presence in the south,” B. D. Narang, chairman and managing director of OBC, said. He added that the merger would be completed in the next two months.
The two banks share a common technology platform called Finacle, which has been developed by Infosys. “The technological integration would be flawless as both use the same software. Moreover, GTB has strong technological linkages which will help OBC,” he said. OBC is strong in corporate finance, while GTB’s forte is retail.
“OBC has a very good recovery record. Therefore, we are confident that the bank will be successful in recovering GTB’s bad loans,” an RBI official said.
Narang said OBC would try to recover about 35-40 per cent of GTB’s bad assets, which stands at Rs 1,500 crore. “This would help us convert the bank's negative networth into a positive one."
He added: “The other benefit is on the tax front. The losses would be treated as tax.”
OBC plans to expand its presence in the east on completion of the merger process with GTB.
“We need to expand in the east. The excess staff of GTB as well as of our bank would be deployed to set up more branches in the east where our presence is limited," said Narang.
All GTB employees shall continue in service and be deemed to have been appointed in OBC at the same remuneration and same terms and conditions, as were applicable immediately before the close of business on July 24. While all assets and liabilities will be transferred to OBC, the latter has also been asked to value the assets and reckon the liabilities of GTB.