OBC rides to GTB's rescue

No share swap after amalgamation; GTB depositors to get their money back.

The Reserve Bank of India (RBI) on Monday drew the curtains on the Global Trust Bank (GTB) drama by announcing the bank's merger with Oriental Commercial Bank, 48 hours after it imposed a moratorium on the beleaguered new private bank. The decision was taken in the interest of GTB depositors, Usha Thorat, executive director, RBI, said.

GTB depositors will get their money back. However, they will not get interest on their deposits during the period between July 25 (a day after the moratorium was imposed) and the prescribed date of the merger.

"Interest from the prescribed date shall be paid in respect of new accounts opened with the transferee bank (that is, OBC) and credited in accordance with the provisions of the scheme at rates OBC normally allows to its own depositors for such accounts," said the amalgamation scheme drafted by the RBI.

The amalgamation will push OBC a few notches higher in the league of public sector banks. It will move up from its current 11th position in terms of total deposits to the 10th slot.

In terms of total assets, it will move up from the 11th position to number eight, driven largely by the addition of the GTB advances portfolio. In terms of advances, OBC moves up from the current perch at number 11 to eighth position and in terms of investments from number 11 to number nine.

The RBI also said there was no question of a share swap following the amalgamation. This essentially means that the shareholders of GTB will get nothing.

The scheme of amalgamation said should there be any surplus remaining after meeting all payments, preference shareholders of GTB would be paid first before pro rate distribution of the surplus among ordinary shareholders of the bank.

OBC is being given the option of integrating GTB's 104 branches according to its convenience. It will also have the right to close or shift loss making GTB branches with the regulator's approval within one year.

All employees of GTB will continue to retain their jobs and get the same salary package and work on the same terms and conditions of service as applicable prior to the closure of business on July 24, the scheme of amalgamation drafted by the RBI said.

In Hyderabad, GTB managing director Sudhakar Gande told the media that the GTB management was set to initiate quick talks with OBC to sort the issue of salary accounts maintained with GTB.

He said: "We would like to send a letter of authority so that accounts can be opened with other banks on a temporary basis and they can then be operated. We have a couple of hundred salary accounts and we want to sort out this issue as fast as possible as it is inconveniencing a lot of our customers."

The central bank has given time till August 7 inviting objections and suggestions for the proposed scheme of amalgamation of the two banks. Once the amalgamation is sanctioned by the government and the date of merger of GTB with OBC is announced, the moratorium will come to an end, said Thorat.

Ramesh Gelli, promoter and former chairman of GTB, said the stakeholders would appeal to OBC to take into consideration the franchise value of the bank's branch network and brand and offer something to the shareholders. He, however, categorically ruled out any possibility of moving court to protect the rights of the shareholders.

The OBC share price fell by 5.3 per cent to Rs 249 on news of the amalgamation but recovered and rose by 7.7 per cent to Rs 270 after the central bank clarified that the takeover of GTB would not involve any share swap. The OBC scrip closed at 267.20, up 1.65 per cent. GTB shares fell by 19.97 per cent to end the day at Rs 10.54.

RBI sources said OBC had not asked for any concessions to take over GTB. With a very high capital adequacy ratio and zero NPA, OBC will be able to take care of the GTB balance sheet which has about Rs 1,500 crore worth of NPAs.

After conducting a due diligence exercise, OBC will have the freedom not to take over all assets. If the need arises, the government may also pump in money to bridge any gap.

Under the scheme of amalgamation as put out by theRBI, the entire amount of the paid-up capital and reserves of the transfer or bank shall be treated as provision for bad and doubtful debts and depreciation in other assets of the transfer or bank.

On Saturday, the Centre froze all the operations of the 10-year old private sector bank for up to three months till October 23 following "wrong" financial disclosures. 

Click here for RBI notification on GTB merger with OBC