Investors — the biggest losers

Mohini Bhatnagar
27 July 2004

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.