Global Trust Bank With Oriental Bank of Commerce

GLOBAL TRUST BANK WITH ORIENTAL BANK OF COMMERCE

ORIENTAL BANK OF COMMERCE

Oriental Bank of Commerce is an India-based bank in Lahore(then a city of British India, and currently in Pakistan), is one of the public sector banks in India.

The Company operates in four segments: treasury operations, corporate/wholesale banking, retail banking and other banking business operations.

Oriental Bank of Commerce made a beginning under its Founding Father, Late Rai Bahadur Lala Sohan Lal.

The period of 1970-76 is said to be the most challenging phase in the history of the Bank.

The bank was nationalized on 15th April, 1980.

GLOBAL TRUST BANK Global Trust Bank is a commercial bank in

Uganda which started operations in 2008. Its headquarters are located in a five-storey building on Kampala Road in the center of Uganda’s capital, Kampala.

Global Trust Bank is 49% owned by Nigeria’s largest insurance company Industrial and General Insurance Company Plc.

The remaining 51% is owned by National Insurance Corporation (NIC) and Ugandan individuals.

It is a consumer-focused limited liability company.

Sequence of the fall 1999-00 - Links with Ketan Parekh. Jan 2001- GTB proposes merger with UTI. Apr 2001Deal called off after RBI steps in Gelli

ousted as CMD. Jun-July 2001 – Gelli quits board, JPC calls for probe. Jun 2001 – RBI gives clean chit on GTB’S liquidity. Feb 2003 – RBI’s assessment negative net worth of

GTB 2003-04 - Bank’s net worth eroded further. July 2004 - RBI rejects Newbridge Capital Infusion

Plan. 24 July 2004 – Government notifies 3 month

moratorium

Reasons for the downfall Aggressive lending to brokers, diamond

traders. Large quantum of non performing assets. Inadequate provisioning. Huge net loss.

Disregarding regulations GTB’s total exposure to Parekh and his

associate co:s was Rs.250-300 crore which was above prudential limit.

In asset qualification. The provision : ‘an asset is an asset,

whether performing or non-performing unless otherwise written off’.

Issue of Governance Industry representatives indicated in

large numbers in the board in the name of professionalism.

Absence of Adequate accountability Safeguards Deterrent provisions against misuse of

authority. Leading to deterioration in

Loan quality Monitoring

Why oriental bank of commerceSome facts:

One of the fastest growing banks.Gross NPA : 1.73% , Net NPA: 0.72%Has one of the highest productivity and lowest cost-to-income ratio.Priority sector lending- 40%

Assets All legal entitlements and assets of GTB were transferred to OCB.The assets of GTB at this date inter alia included: Property Rents and other income Office furniture Equipment Plant Investment in stocks, shares and securities Bills receivable Cash and cash equivalents Debts and guarantees

Liabilities and litigations All the liabilities, Duties and obligations

of GTB have been transferred to OCB. The liabilities includes:

DepositsBorrowings Contingent liabilities

Scheme permits any legal proceedings by or against GTB that remained outstanding to be prosecuted and enforced by or against OCB.

OBC’s liability is restricted to civil claims

Deal Issues RBI arranged a white knight for the eight

lakh beleaguered depositors of GTB. RBI was derelict in its handling of the

Global Trust Bank. RBI first detected GTB had a negative net

worth as long back as march 2002. The depositors were permitted to

withdraw only up to Rs.10000 from their savings bank a/c or current a/c.

Non disclosure of OBC’S interest

OBC gave the RBI its latter of interest in the second week of July.

This was not disclosed to investors till July 26.

The finance minister has gone on record to say there were regulatory lapses.

Strategic benefits for OBC

OBC

High net worth clients

Huge client base in

south India

104 branches

275 ATM’s

Strong centralized IT infrastructure

Young well trained

work force

Advantages for OBC No share swap. Paid-up equity capital of GTB was

adjusted towards its liabilities. High level of non interest income. Tax benefits: GTB’s large amount of

investments in NPA’s estimate Rs.1.2 bn and impaired assets of Rs.3 Bn.

GTB customers could enjoy the trust of a public sector banks.

Managing GTB’s non-performing Assets

Main focus on:- Recovering and restructuring accounts. Reaching settlements with borrowers. Filing civil and criminal actions. OCB used its strong financial position to

provide for GTB’s NPA’s. Net NPA’s as a percentage of GTB’s net

advances.