People's Democracy

  GTB Collapse – An Ugly Face Of Finance Capital

Kingsuk Datta

WHENEVER a private bank is in trouble, it is always the public sector banks that bail it out. This is something that many the private sector bankers also believe.

Even before the Global Trust Bank (GTB) catastrophe, Bank of Baroda and Punjab National Bank have bailed out Banaras State Bank and Nedungadi Bank. The number of forced amalgamation of weak private banks with prosperous public sector banks has created such confidence in public sector banks, which otherwise have been the target of slanderous attacks of the pioneers of neo-liberal reforms.

COLLAPSE OF THE PRIVATE SECTOR BANKS

And, in fact, these cases of virtual collapse of the private sector banks are the result of nearly one and a half decades of liberalisation-privatisation hullabaloo. The general people of India are by now convinced that the tally of private bank failures will go up in the days to come.

The confidence reflected in the introductory remarks is a complement to the public sector undertakings in general and public sector banks/FIs in particular, which surely deserves the acknowledgment with grace and satisfaction, particularly in an era, in which the prophets of economic liberalisation have attempted to prove redundancy of public sector and its role and utility in the national economy.

But at the same time we must not fail to look at the extent of shameless innate opportunism of capitalism, more specifically that of the contemporary finance capital. The stories of GTB along with the decline of the other private sector banks are only a few acid tests which re-affirm how the finance capital takes the economy of a country for a ride, fosters its interest and repeatedly approaches the State in its bad time for regaining the strength.

Instead of repeating the details of GTB fiasco, we shall discuss the aspects that glaringly expose the mutual collaboration between the capitalist technocrats, money market operators, and traders on the one hand and the nexus between the bourgeoisie and state machinery on the other.  

DUBIOUS RECORD OF RAMESH GELLI

The rise of Ramesh Gelli, the forefront promoter of GTB and the former CMD of the bank is quite interesting. An engineering graduate from Osmaina University and ‘alumnus of the Asian Institute of Management’ shifted job thrice in three years starting from Vazir Sultan to Andhra Pradesh Road Transport Corporation via Bharat Heavy Electricals Limited, before stepping in Vysya Bank as general manager in 1980. Gelli a friend of former chief minister of Andhra Pradesh, Chandrababu Naidu, had strong political connection and ambition. He was elevated to chairmanship of Vysya Bank within next three years. With the tom-tom of liberalisation and privatisation, the exuberant initiator of neo-liberalisation and privatisation, the then central government, wasted no time to greet Gelli, the new breed professional by awarding Padmashree in 1991, for ‘turning a staid Vysya Bank into the raging favourite of the stock market.’ And in 1993, Reserve Bank of India granted GTB a licence to start banking operation, which began its operations in October 1994 with the blessings of Dr Manmohan Singh, the then union finance minster of Narashima Rao’s cabinet.

Quite logically Gelli, the new generation private sector banker, who became the blue eyed boy of the neo-liberalism, promoted the interest of finance capital in India, relishing relations with the share brokers and money market operators. Many among this flock, are unscrupulous, the rogue share broker Ketan Parekh and diamond king Bharat Shah, are only to name a few. The media reports reveal, the total non-performing assets (NPA) of GTB is around Rs 1200 crore. Between the period December 2000 and January 2001, GTB extended loans for more than Rs 800 crore to corporate and stock market operators. Of this Ketan Parekh and related entities were lent Rs 250 crore, a telecom company, having links with Ketan Parekh Rs 250 crore and a media company Rs 250 crore. The bank’s exposure to the capital market on January 31, 2001 was Rs 1163.8 crore equivalent to 20.6 per cent of the total advance portfolio of the bank. However, as media says, GTB reduced its capital market exposure to below 5 per cent of total advance as on March 31, 2003 from 14 per cent as on March 31, 2003. But this no way negates the fact that the bank funds have been utilised to woo the speculative activities, time and again. The net worth of the bank as per the source had become negative with a figure of minus Rs 1000 crore or so having a negative capital adequacy ratio of 0.07 per cent. On the eve of the merger of the virtually bankrupt GTB with Oriental Bank of Commerce, the latter has made it clear that at the most 40 per cent of GTB’s NPA are expected to be realised leaving a huge sum of public money robbed by the gusty speculative activities.

Do these facts not expose the hollowness of the claims of superiority of private sector in the economy and the naked lust of finance capital to rob the wealth?

DECLINE OF GTB

It is worthwhile to note that the GTB has called the attention from the very beginning when the things started moving wrong. Alarms were on in a number of occasions to wake up the regulators to step in for appropriate actions to set the affairs in the right rail with firmness. Right from 1997-98, the advance portfolio became the source of worry. Increasing exposure to capital market through advances as discussed, above has been digging the grave. There was also FERA enquiry in the bank’s funding to a corporate for a non-existent refinery. Back in 1997, Reserve Bank hauled up the bank for misuse of stock invest scheme. Reserve Bank ousted Ramesh Gelli from the bank’s chairmanship and subsequently from the board of the bank after a botched attempt to merge the bank with UTI Bank in 2001. Interestingly, Gelli was replaced by a former merchant banker who had a dubious record as the founder of a mid-sized private merchant bank, namely Lexicon Finance! Meanwhile, SEBI investigation has unearthed the manipulation and insider trading in the GTB scrip. The Joint Parliamentary Committee on stock scam directed Reserve Bank to probe GTB’s involvement with OCBs, marked by five OBCs depositing Rs 3000 crore with GTB.

In June 2002 Reserve Bank reported that the bank did not have any liquidity or solvency problems and there we reno regulatory concerns! While Gelli was able to escape from being indicted by JPC, and the Reserve Bank accorded the clean chit of solvency in June 2002, the special audit in 2003 confirmed a huge hole in the Balance Sheet of GTB. Above all the return of Gelli as a member of the board of the bank in 2004 despite his dubious record confirmed the mismanagement in the bank and the mockery of the regulatory mechanism of the country. The allegation of continuing insider trading of GTB scrip became almost inviolable with further report of safe exit of Foreign Institutional Investors and other corporate entities disposing their shareholding in the nick of time. This is quite interesting to note that, earlier also soon after the removal of Gelli in 2001, most of the share brokers who had their accounts with GTB, shifted from it.

Not only the regulatory bodies failed to tight their clutches at the right time to the best interest of the economy, the auditors of the bank, the two most internationally hailed firms namely Lovelock & Lewis till 2001-02 and Price Waterhouse Coopers afterwards have also been proved to be failure to ring the adequate alarm on the deteriorating state of affairs of the bank, as alleged by Reserve Bank as per the media information.

However, it is needless to say that the process of passing the buck of the blame for the failure on the part of the concerned, will be continued to blur the focus on the main issue, till the attention can be diverted to some other areas.

TRADING IN  JUNK GTB SHARES

To the surprise of many, even after the merger of GTB with Oriental Bank of Commerce was announced, the near junk GTB shares were being actively traded, when it was certain that for all practical purposes GTB shares would be extinguished after the merger. Some guess that the mysterious buyers could be speculators betting on a possible swap ratio after a court judgement on the merger, though while the probable attempt by the set of investors holding GTB scrip at a higher value to bring down the average cost, though such buying the junk scrip cannot be ruled out.

But if the first possibility is the reality, it again signifies that the greedy finance capital does not spare its target even in the latter’s gasping state.

We must be very clear that neither Gelli nor GTB is an aberration of the private sector banking phenomena. There are much more stories already in the air to signify the dubious operation and game plan of the finance capital which obviously retains its multinational character. The event of step in of foreign capital and Bank Muscat to rescue the crises ridden Centurion bank as well as the poor credibility of eleven private sector banks, incorporated so far, as new generation banks, in terms of operational parameters and stock market quotation speaks volumes leaving hardly any credibility of the new generation bank vis-à-vis economic reform.

THE MERGER ISSUE

A section of media pundits have now started suggesting for closing down GTB instead of merger with Oriental Bank of Commerce, arguing that the acquisition will wipe out the profits of Oriental Bank of Commerce. To these advocates, the merger of GTB with Oriental Bank of commerce banks amounts to punishing the latter, who has done nothing to deserve such harsh treatment.

We strongly disagree to these sorts of irresponsible suggestions. We believe that the state has and will have to shoulder the responsibility to protect the interests of millions of innocent depositors, the economy of the country to the best interest of the nation, not subordinating to the finance capital. The robust role of public sector in building and sustaining a strong economy shall have to be repeatedly upheld to reply the critics and enemies in a befitting way. Consolidation on the basis of ideological line to scuttle the increasing attempts by the conspirators to convert the economy into a hunting ground of finance capital shall also be done, through expansion of public sector’s dominance. The uninterrupted campaign demanding the implementation of meaningful and pointed vigilance on the economic activities to ensure that the rogue operators do not succeed in their design, has to be intensified.