Global Trust Bank was one of the leading private sector banks in India. Owing to prolong financial debt, the company merged its operation with Oriental Bank of Commerce in 2004.
Global Trust Bank: Rise and Fall
Global Trust Bank (GTB) was the outcome of liberalization polices initiated by the Government of India during the 1990s. As the government allowed private entities in the banking sector, GTB was established in the year 1994 with its registered office at Hyderabad, the capital of the state of Andhra Pradesh, India. It was promoted by three entrepreneurs with considerable experience in the banking sector.
The establishment of GTB was considered a major breakthrough in the Indian banking sector. The high success rate during the initial years led GTB to become the first bank to attract equity capital from international investment banks, such as International Finance Corporation (IFC) and Asian Development Bank (ADB). The Initial public offering (IPO) of the bank was oversubscribed 60 times. In the first five years of operations, the bank had total deposits worth Rs40 billion.
The fall of the banking entity began in the early 2000s. The Reserve Bank of India’s (RBI) probe revealed irregular financial disclosures. Some of the major factors the led to the fall of GTB are:
· Attempt to build a capital base from foreign investment failed.
· Nexus with Ketan Parekh, who was involved in one of the biggest stocks scandals in India.
Global Trust Bank Merger
As Global Trust Bank collapsed, RBI announced its merger with the Oriental Bank of Commerce (OBC). The bank took all the assets and liabilities of GTB, along with its 104 branches, 275 ATMs and a workforce of over 1400 employees. However, according to the merger deal, GTB’s shareholders would not get OBC shares. OBC benefited hugely, as its network and customer base expanded. It also earned tax benefits due to GTB’s large amount of investment in non-performing assets (NPAs).
The deal was equally beneficial for GTB depositors, as they could now enjoy the trust of a public sector bank. However, the Global Trust Bank saga created an environment of suspicion against private sector banks. This became one of the reasons for the immense success of public sector banks in India.