The censure of UTI Bank chairman and managing director P J Nayak by the Joint Parliamentary Committee (JPC) probing into last year's stock market scam, and his subsequent move to proceed on leave, has sent the bank's preferential issue plan for a toss.
The draft JPC report is extremely critical of Nayak's role in the failed merger of UTI Bank and Global Trust Bank.
Nayak has gone on four weeks leave and the bank board will meet this week to form a committee to inquire into the deals. The banking industry hailed Nayak's move as 'exemplary'.
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"He has shown the courage to ask the bank to probe his role in the failed merger. He will come out clean as his integrity is unimpeachable," said a senior banker.
According to sources, the bank had been in talks with JP Morgan to make a preferential issue. The talks were in advanced stages and was scheduled to have been sewn up in the next few weeks. With Nayak going on leave, the talks have been currently suspended and are likely to start off when he resumes office.
JPC had asked UTI bank top conduct an independent inquiry for the failed merger of UTI Bank with Global Trust Bank.
JPC had said that there was undue haste in the merger negotiation and due diligence was not conducted. It added that Nayak had stood to gain personally from the merger.
SBI Caps had initially done the due diligence for the UTI Bank- GTB merger where the share swap deal was fixed a 2.25:1 UTI Bank had afterwards appointed Deloitte Haskins & Sells to conduct a due diligence.
Earlier in February 2002 the bank had decided to allot zero coupon fully convertible debentures of around Rs 60 crore or 5 per cent of the equity with AIG Sectoral Fund. This had however hit a roadblock with AIG deciding not to invest in the bank.
UTI Bank had in September 2001 made a preferential issue at Rs 34 per share to CDC Capital Partners (formerly known as Commonwealth Development Corporation). CDC had picked up a 26 per cent stake at Rs 157.59 crore through two funds -- South Asia Regional Fund and CDC Financial Services.
The bank has allotted 1.78 crore shares (9.99 per cent) to South Asia Regional Fund and 2.89 shares (16.02 per cent) to CDC Financial Services (Mauritius).