The Rise and Fall of Global Trust Bank

            
 
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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.



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Case Details:

Price:

Case Code : FINC038 For delivery in electronic format: Rs. 400;
For delivery through courier (within India): Rs. 400 + Rs. 25 for Shipping & Handling Charges

Themes

Corporate Governance
Case Length : 16 Pages
Period : 2000 - 2004
Pub. Date : 2005
Teaching Note : Not Available
Organization : Global Trust Bank (GTB)
Industry : Banking
Countries : India

Abstract:

The case describes the growth and collapse of Global Trust Bank, a leading private sector bank in India. Since 2001, GTB's name was associated with scams and controversies, thereby casting shadows over the credibility of the bank and its management.

Due to the over exposure to capital markets and huge NPAs, the bank was in a financial mess. When GTB tried to cover up its monumental NPAs through under provisioning, RBI - the Central bank and the regulatory authority for banks in India, appointed an independent team to review the finances of the bank. The review revealed various financial discrepancies kept covered by the bank.

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RBI imposed a three month moratorium on GTB on the ground of "wrong financial disclosures" and within two days the bank was merged with Oriental Bank of Commerce (OBC), a public sector bank. With the merger becoming effective, GTB's identity came to an end and it became a part of OBC.

Issues:

The case aims to teach students how financial mismanagement can lead to significant losses for a bank. The case is designed to enable students to:

Analyze the reasons that led to the fall of Global Trust Bank

Discuss the importance of proper supervision and control systems in a bank to mitigate risks

Understand how overexposure to capital markets can lead to huge NPAs for a bank

Appreciate the need for financial institutions to uphold the ideals of transparency and absolute scrupulousness where public money was involved

Examine the role of RBI as a regulating authority and debating on the justifiability of its actions in the GTB fiasco

Contents:

  Page No.
The Moratorium 1
Background Note 2
The Fall 3
The Merger 6
The Aftermath 7
Exhibits 9

Keywords:

Case, Global Trust Bank, Wrong Financial Disclosures, Non-Performing Assets, Financial Irregularities, Capital Adequacy Ratio, Private Bank Failures in India, Control Systems, Transparency and Regulatory Authority

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