People's Democracy(Weekly Organ of the Communist Party of India (Marxist)
August 29, 2004
Collapse – An Ugly Face Of Finance Capital
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.
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
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.
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.
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.
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.
RECORD OF RAMESH
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.
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.
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?
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.
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.
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.
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.
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.
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.
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
THE MERGER ISSUE
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.
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.