The biggest losers in the merger between Global Trust Bank (GTB) and Oriental Bank of Commerce (OBC) are its 160,000 investors. The eight-lakh depositors, a large part of who are in Andhra Pradesh, Maharashtra and Tamil Nadu, can heave a sigh of relief that they have been saved from a major loss.

The good news for accountholders is that salary accounts, fixed deposits and current accounts will be protected (albeit inoperable till the moratorium remains) though fixed deposits will now be under the OBC interest rate regime.

For the failed bank's employees there is good news. OBC has agreed to absorb all employees of GTB and has further ensured that their salaries will be protected for the next three years at least. Since GTB was a high-profile private bank, its employees enjoyed a higher remuneration than those in PSU banks, including OBC.

For the 160,000 retail investors, however, the story is a sorry one. Since RBI's proposal of merging GTB with OBC does not involve a share swap, GTB's shareholders are likely to get nothing.

According managing director Sudhakar Gande of GTB, "with the merger not involving a share swap, the net worth of GTB's shares is technically zero." Thus the share certificates may not be worth the paper they are printed on.

According to the shareholding pattern of GTB (as on June 30, 2004, the Indian promoters of GTB held 19.28 per cent stake in the equity base of Rs121.36 crore, while the Indian public held the majority 51.28 per cent of the stake. Private corporate bodies hold 20.54 per cent stake while banks, financial institutions and insurance companies held 0.56 per cent.

The Indian promoters include Ramesh Gelli (1.83 per cent), Gajanan Financial Services (2.43 per cent), G Premkala (1.88 per cent), Jayanta Madhab (1.24 per cent). NRIs / overseas corporate bodies, hold 4.94 percent of the while foreign promoters of the bank hold 0.25 per cent stake.

It has now emerged that foreign institutional investors (FIIs) have been quietly selling GTB shares in substantial numbers and the Indian retail investor has been lapping them up.

FIIs led by Goldman Sachs sold a large number of GTB shares, bringing down their total stake below 1 per cent from 4.9 per cent during the quarter ended June 30, 2004.

Other FIIs such as DBMGOF (Mauritius) held five per cent and Credit Suisse First Boston A/C Kallar Kahar Investment which held a 1.57 per cent stake in December 2001 had sold its entire stake in the bank by the end of the quarter ended March 2002.
There was also a marginal fall in promoter holding to 19.5 per cent from 19.7 per cent.

The stock's price zoomed to an all time high of Rs114.70 on November 2000 on the Bombay Stock Exchange (BSE) and a low of Rs11.02 on July 17, but bounced back 20 per cent in one week to close at Rs13.17 last Friday, July 23.

The stock closed at Rs10.54, at the 20 per cent lower circuit filter on the BSE, yesterday. ( See: The market reaction)

In the same period the public holding improved substantially, reflecting that shares sold by FIIs, NRIs and OCBs were picked up by a large number of small investors. On the assurances from GTB's promoters that they were working on a rescue package, the general public bought an additional 6.4 per cent stake in the market on the hopes of positive developments in the bank.

As a result, the total public holding in the bank increased from 44.88 per cent at the end of the quarter ended March 2004 to 51.28 per cent at the end of the June quarter. Now the public has emerged as the single largest shareholder — and perhaps, the largest loser.

As Gande told reporters, "The NRI's and FIIs stakes are now so low in GTB that for them it really doesn't matter much."

The only hope that Indian shareholders have is the pool account proposed to be set up by RBI out of whatever recoveries can be made of the NPAs. However, there is also negligible hope as the time period for disbursement to shareholders has been fixed at 12 years.

GTB's troubles actually began when an RBI inspection found that GTB's net worth was actually negative against a stated amount of Rs400.40 crore on its audited balance sheet for the year ended March 2002. According to RBI, "GTB's audited balance sheet for the year ended March 2002 showed a net worth of Rs400.40 crore which an RBI inspection found to be actually negative. And in view of this "large variance" in assessment of GTB, an independent chartered accountant was appointed by RBI to reconcile the position, which found that the central bank's assessment was correct."

The bank was given time to improve its financial position and capital adequacy ratio (CAR). GTB submitted a "concrete proposal" (involving international private equity fund Newbridge Capital) in the first week of July 2004, which was however "rejected by RBI as certain terms and conditions were not acceptable." Subsequently a moratorium was placed on the bank freezing all its operations.

Related reports
	Mutual funds affected by moratorium
	Despite bankruptcy
	GTB shareholders could be left in thelurch
	Fall of a banker
	The market reaction
	The cost of acquiring GTB

List of reports on Global Trust Bank

List of general reports on banks