In the eye of a storm

CHENNAI, JULY 24. Prior to the dawn of the New Millennium, Ramesh Gelli-promoted Global Trust Bank (GTB) had hogged headlines in most financial papers and hailed as the rising star in the Indian banking industry. Since 2001, however, it has been constantly in the news for all wrong reasons. The failed exercise to merge GTB with UTI Bank in 2001, the securities scam in early 2001 and the mid-year run on its branches in 2002 have all kept GTB under public glare. The latest announcement of a moratorium on the bank has only ensured that GTB remains in the eye of a storm for a long time to come.

The moratorium has caught every body off guard, no doubt. It has not surprised close GTB watchers, however. Yet, the move has come as a shocker to many a depositor. Though the Order of Moratorium gives some relief vis-a-vis withdrawals, panicky depositors are engulfed by a sense of disbelief. Notwithstanding the assurance of the apex bank to find a solution before October 23, depositors are a worried lot.

GTB is, perhaps, the first new generation private bank to be placed under moratorium inside ten years since it went public in August 1994. Coming events, it appears, have cast their proverbial shadows before them. In fact, the Joint Committee of Parliament, which submitted its report in December 2002 on the securities scam, had clearly noted that the exposure of GTB to the capital market (during 2000) by way of advances against shares and guarantees issued on behalf of brokers "was relatively higher and the bank had a very high exposure to a particular stock broker." The Parliamentary panel found the exposure of GTB to capital market to be in excess of the limit prescribed by the board of the bank. Ironically, every time the limit was breached, the board came to the rescue by ratifying it, the panel noted.

The Parliamentary panel was given three briefs vis-a-vis GTB — to probe (a) the high exposure to capital market; (b) fluctuations in the prices of GTB shares in the wake of GTB-UTI Bank merger moves; and (c) diversion of funds taken as loan from the bank by stock broker Ketan Parekh entities and others. A Securities and Exchange Board of India (SEBI) report to the panel confirmed that "the price of GTB shares were manipulated during the period between October 2000 and February 2001, that is, prior to the announcement of proposed merger with UTI Bank". The panel report said that the former Chairman of the bank, Mr. Gelli, while deposing before it, "did not totally rule out that there could have been rigging in shares of GTB".

All these had seen Mr. Gelli go out as the Chairman of the bank, the move for merger with UTI Bank called off and the RBI expressing displeasure over the way the bank had exposed itself to the capital market.

Given these backdrops, the Reserve Bank of India has reasons to step in to do course correction of this extreme nature. The point, however, is that there is always a time lag between identification of a problem and application of a solution. Effective communication by assorted responsible players in the interim is essential to avoid unrest among common depositors.

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