Impact Analysis: GTB-OBC merger , July 2004
Impact AnalysisGTB-OBC merger
July 2004
Following GTB's merger with OBC, GTB depositors will maintain
their principal, but they will lose interest to the tune of 75-100
bps after the merger. The entire amount of the paid-up capital and
reserves of the transferor bank will be treated as provision for
bad and doubtful debts and depreciation in other assets.The merger
will have a favourable impact for OBC in terms of an increase in
its reach and presence in South India and an addition of 1 million
retail deposit holders. The bank's branch network will increase to
1092. Since both banks have the same technological platform, the
transition of operations will be smooth. OBC's risk weighted asset
base will increase, lowering the combined capital adequacy ratio
(CAR) of the merged entity by 223 bps to 12.24 per cent, which is
still over the stipulated 9 per cent.Contents
SectionsBackground1Impact on GTB1Impact on OBC3Tables
Comparative performance1
Comparative rate of interest on deposits2
No of branches3
Capital adequacy3
Oriental Bank Of Commerce4
Global Trust Bank Ltd5
Contact details: Yatin V Gupte([email protected])
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Impact analysis: GTB-OBC merger
Background
Ramesh Geli promoted GTB in the mid 1990s. As of March 2003, the
net worth of the bank was wiped off owing to accumulated losses to
the tune of Rs 2.65 billion. If the bank had made provisions for
the entire gross non-performing assets (NPA) of Rs 9.16 billion,
the accumulated loss would have been Rs 5.52 billion.
Following the failure of the management's repeated attempts to
infuse capital in GTB, the RBI placed a moratorium on the bank's
operations on July 24 to protect the depositors' interest. On July
26, RBI announced the merger of GTB with OBC. This move is expected
to protect the interest of GTB's depositors.
This paper tries to analyse the impact of this merger.
Comparative performanceFY: 2002-03
(Rs in billion)
ParticularsGTBOBCCombined
Advances32.76156.77189.53
Investments26.5147.8174.3
Deposits69.21298.09367.3
Net profit-2.734.57
Gross NPA9.1611.4620.62
Net NPA6.482.258.73
Gross NPA (per cent)25.86.910.8
Net NPA (per cent)19.81.44.6
Branches (nos)879891076
Staff (nos)1,31413,507
Capital adequacy ratio0.014.012.2
Source: IBA performance highlights of Private and Public Sector
Banks
Impact on GTBDepositors:The Finance Minister and the Reserve
Bank of India had assured GTB's 1 million depositors that their
interest would be protected; this scheme appears to have realised
that assurance.
1Impact Analysis: GTB-OBC merger , July 2004
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