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The Fall
The collapse of GTB resulted from many mistakes committed by the bank's management. GTB's problems started in 2000 and the imposition of the moratorium finally ended its independent existence.
RBI's probe into GTB's accounts revealed a significant erosion of the bank's net worth and huge number of NPAs reflected its weak financials. Moreover, GTB's attempts to strengthen its capital base through investments from overseas failed due to regulatory problems, resulting in the total collapse of the bank. The major factors that led to the fall of GTB included:
NEXUS WITH KETAN PAREKH
In mid-2000, GTB disbursed loans of Rs 1.4 bn to Ketan Parekh (KP), a leading stockbroker at the Bombay Stock Exchange (BSE). He used the money to purchase GTB shares from the BSE and the National Stock Exchange (NSE)... |
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The Merger
All these factors resulted in the imposition of moratorium by RBI on GTB. On July 26, 2004, RBI announced that GTB would be merged with the Oriental Bank of Commerce (OBC).
| As per the scheme, OBC took over all the assets and liabilities of GTB on its books. It acquired all 104 branches of GTB, 275 ATMs, a workforce of 1400 employees and one million customers at an estimated merger cost of Rs. 8 bn. OBC's total business volume was expected to reach Rs 65 bn and the total branch network to cross 1,100. All corporate accounts including salary accounts were transferred to OBC. The entire amount of paid-up equity capital of GTB was adjusted towards its liabilities. There was no share swap between GTB and OBC, which meant that GTB shareholders were the ultimate losers, as they did not get any shares of OBC. Moreover, OBC enjoyed a huge tax break by acquiring GTB's NPAs worth Rs 1.2 bn and impaired assets of Rs. 3 bn... |
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The Aftermath
Though RBI's decision to merge GTB with OBC came...