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Countdown to collapse of Global Trust Bank

This was a crisis in the making for the last three years. The genesis of the GTB collapse lies in now ousted promoter Ramesh Gelli's involvement in the Ketan Parekh securities scam of 2001, when he gave huge unsecured loans to the stock broker and group companies of Zee Telefilms.

GTB’s audited balance sheet for March 31, 2002, showed net worth of Rs 400.4 crore & a profit of Rs 40 crore. However, RBI’s inspection revealed that net worth is negative.

In view of very large variance in the assessment of GTB’s financial position as reported by auditors and by RBI’s inspectors, an independent chartered accountant was appointed to reconcile the position.

GTB was placed under directions relating to certain types of advances, certain premature withdrawal of deposits, declaration of dividend and its capital market exposure. RBI also started monitoring GTB on monthly basis.

In view of the need to complete the statutory audit and to assess the steps necessary to be taken on the future set up of the bank, RBI permitted GTB, time up to Sept 30, 2003 to publish its annual accounts.

On March 31, 2003, GTB announced deposits of Rs 6,921 crore and advances (loans) of Rs 3,276 crore. On its balance sheet, it showed gross non-performing assets of Rs 915 crore while total provisions (against bad loans) were Rs 268 crore.

RBI issued press release, which said: “Even though the financial statements show an overall loss, the bank has made an operating profit for the year 2002-03. The RBI welcomes the decision taken by the GTB and its board to clean up the balance sheet”

But RBI’s inspection showed that bank’s net worth has further eroded and capital adequacy ratio (CAR) was negative.

GTB was advised to take immediate steps to infuse fresh capital to restore its CAR to 9% and indicate a time-bound programme. Bank was advised to explore options of raising capital through domestic sources or through merger with another bank.

Ealier, Centurion Bank was able to get RBI permission for Sabre Capital of Rana Talwar to infuse capital to bail out the bank. However, GTB proposal to RBI for infusion of capital and restructuring by NewBridge Capital was rejected by RBI.

Thereafter, government on the 24th July placed GTB under moratorium for three months on application from RBI.

Notification of Reserve Bank of India ... Click here
What is in store for customers ... Click here
Clarifications from RBI ... Click here
Global Trust Bank (GTB)- Who is the loser? ... Click here



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