The Rise and Fall of Global Trust Bank

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Case Details:

Case Code : FINC038
Case Length : 16 Pages
Period : 2000 - 2004
Pub. Date : 2005
Teaching Note :Not Available
Organization : Global Trust Bank (GTB)
Industry : Banking
Countries : India

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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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Background Note Contd...

Though the licence to GTB was given in the name of Jayant Madhab and Associates, Madhab's involvement with GTB was affected by the loss of his only son.

The bank's operations were managed by Gelli. Apart from the three promoters, the International Finance Corporation (IFC) and the Asian Development Bank (ADB) were the bank's major shareholders. GTB offered an array of products and services in retail, wholesale, corporate, treasury and investment banking and products for non-resident Indians, apart from depository and advisory services.

The bank specialized in lending to the software, energy, telecom, textiles, pharmaceuticals and gems and jewellery sectors. Since its inception, GTB had been in the news several times. The three promoters raised Rs 400 mn, considered a substantial amount for individual promoters.

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With two international financial institutions - IFC9 and ADB10 - as shareholders, GTB became the first Indian private sector bank to attract equity participation from international investment banks.

The initial public offer (IPO) in late 1994 was oversubscribed 60 times. Subscription worth Rs 62.40 bn from over one mn investors was received as against the original size of Rs.1.04bn. On opening day, the bank reportedly received deposits worth Rs one bn, which increased to Rs 10 bn by the end of the first year; and Rs 27.06 bn in three years.

In three years of operations, the total business exceeded Rs 43.02 bn, making it one of the fastest growing banks in India. It was also the first among Indian banks to raise Tier II capital11 from multilateral institutions. In five years, GTB's deposits were worth Rs 40 bn out of which 70 per cent were from retail investors...

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9] IFC is a member of the World Bank group and is headquartered in Washington DC in the US. It promotes sustainable private sector investments in developing countries.

10] Established in 1966, ADB is headquartered at Manila, Philippines. It is a multilateral finance institution working towards poverty alleviation in Asia and the Pacific regions.

11] Tier II capital is secondary capital of a bank that includes items such as undisclosed reserves, general loss reserves, subordinated term debt and more.


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