The
cost of acquiring GTB
Pradeep
Rane
27 July 2004
The
cost of acquiring Global Trust Bank (GTB) for the Oriental
Bank Commerce (OBC) is estimated to be about Rs 6.5
billion. This is worked by the shortfall the PSU bank
has to meet to clean the books of GTB, which has a shortfall
of Rs12.5 billion.
For
the merger, the Oriental Bank Commerce is expected to
acquire around Rs47.5 billion of total standard assets,
against liabilities of Rs60 billion, leading to a shortfall
of Rs12.5 billion. Of this, OBC will save Rs6 billion
through a tax-break, but it will have to fill the gap
of Rs6.5 billion, at the time of the merger, which can
be considered the cost of acquiring GTB.
OBC
officials say that 40 per cent of the bank's gross non-performing
assets (NPAs), which is estimated at Rs17.50 billion,
are recoverable. In the event of 40 per cent recovery
over the next two years, the acquisition cost translates
to nil. In the event of nil recovery, OBC may have to
take a hit of Rs6.5 billion, to be offset by the money
value of the time saved for expanding its network and
client base, to the extent offered by GTB.
The
credit book of GTB is estimated to have gross advances
of Rs32 billion, of which Rs17.5 billion are estimated
to be sticky and would require provisioning / write-offs,
leaving a balance being Rs14.5 billion. On Saturday,
July 25, RBI announced a moratorium for GTB and the
government on Monday, July 27, proposed to merge the
Hyderbad-based bank with the Delhi-headquartered OBC.
GTB's
liabilities through deposits are around Rs58 billion
and another Tier-II borrowings of around Rs2 billion.
GTB is estimated to hold around Rs28.5 billion of SLR
and CRR. Moreover, it also carries Rs4.5 billion of
fixed and other assets, which could actually be worth
more in terms of market value.
According
to the Mumbai-based Enam Securities, OBC will benefit
from the acquisition as it would take-over more than
100 branches and over 250 ATMs along with a customer
base of around a million. While OBC is ready to absorb
the approximately 
1,250
employees, a substantial part of the staff may decide
to quit. OBC will also get access to GTB's technology
platform, which is among the best in the industry and
will be easily adapted by OBC.
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