The Reserve Bank of India (RBI) wants to ensure that its regulatory lapses never come in for scrutiny; and what better way to ensure this than an immunity clause in the amalgamation scheme of Global Trust Bank (GTB) with Oriental Bank of Commerce (OBC)? It says that no suit or legal proceedings can lie against the centre, RBI, OBC and GTB for anything done in good faith or in pursuance of the Scheme.
Fair enough. But what about the supervisory lapses, diluted inspection reports and repeated failure to initiate remedial action that led to GTB’s problems in the first place? Won’t those be buried by this catch-all immunity clause?
In the GTB case, RBI’s shoddy scrutiny can be traced back to the grant of its banking licence. Ramesh Gelli was a high-profile banker while at Vysya Bank and is the only banker ever to be honoured with a Padma Shri. Yet, few know that the banking licence was granted to Jayanta Madhab and not Gelli. Madhab was on GTB’s board but returned to Assam soon after the bank got going. Ramesh Gelli quickly mobilised his diamond trader friends to patronise the bank and they cobbled together its Rs 100 crore capital though some dubious financing arrangements.
The red flags over GTB’s operations started going up in 1999, even before Ketan Parekh wreaked havoc at the bank, with a web of inter-linked accounts and rapid transfer of funds. Ironically, the first revelation came from RBI’s own supervision department, but the inspection report was forcibly diluted. An annexure to that report had raised important questions about irregular lending to Ketan Parekh, Shankar Sharma of First Global and several investment companies ‘belonging to the promoter group’. It was simply ignored.
The Ketan Parekh dealt a body blow to GTB, and the authorities have always suppressed its precise role in the scam. GTB wasn’t merely an overzealous lender who chased business indiscriminately, but the very hub of Ketan Parekh’s transactions. All his corporate cronies, their investment companies, as well as Parekh’s own network of investment firms had accounts at GTB. Post-scam investigations revealed how money has been rapidly and repeatedly transferred between various accounts of this crony group, within a single working day. GTB lent large sums of money to corporate houses such as Zee Telefilms and Himachal Futuristic (HFCL) which was promptly diverted to Ketan Parekh to ramp up their stocks as well as that of GTB. All this and more has been glossed over during the post-scam investigations because of Gelli’s powerful political links. In fact, just when the scam was beginning to unravel, there was an attempt to suppress the entire mess through another shotgun merger with UTI Bank. Fortunately, that attempt failed when GTB’s mischief began to be exposed.
Yet, the worst that Gelli and his family have suffered was to be asked to step down from the bank’s board. Knowledgeable sources say RBI has been aware of GTB’s precarious position for a long time. After all, it has bailed out the bank after Scam 2000 as the lender of last resort.
The next big alarm rang in 2002-03. Three directors suddenly resigned (including the head of its audit committee, a Senior Partner of PWC and the former chairman of Canara Bank); and GTB’s auditors issued a heavily qualified audit report, over and above the big net loss of Rs 272 crore declared by the bank. At that time, RBI issued an unusual and glowing letter of commendation to the bank, lauding its ‘‘special effort’’ at recovering non-performing assets (NPAs). It also allowed GTB to dip into statutory reserves; later the share premium account was appropriated to wipe out bad loans.
The RBI made no efforts to question the ‘independent’ directors about their exit because it was busy protecting the bank. It also doesn’t seem to have noticed the qualified audit report or the change in auditors, because it has recently threatened to report the auditors to the Institute of Chartered Accountants of India (ICAI).
How can the RBI dare to complain about the auditors when its own lapses are so much greater? In fact, in the aftermath of its public spat for GTB’s recovery efforts, the bank’s managing director Sudhakar Gandhe told newspapers, ‘‘All the problems of the past have been sorted out’’. Really, then why was the bank put under moratorium just 10 months later? The big irony is that Ramesh Gelli as well as Sudhakar Gandhe are busy distancing themselves from the mess. Gelli blames all the mischief on his ‘delegation’ of powers to professional bankers; but everybody connected with the bank says otherwise. Sudhakar Gandhe also claims to have fulfilled his mandate, whatever that may have been.
In this period, a series of large investors have been selling blocks of GTB stock in block deals on the bourses, right up to the declaration of moratorium. Were they privy to inside information? The capital market regulator has never investigated the sales or initiated any action. Instead, from July, the Securities and Exchange Board of India’s ban on Ramesh Gelli and his group from participating in the market came to an end and he is now free to go ahead and set up the turnaround fund that he has already announced. In fact, in February this year, a confident Gelli was reinducted on the GTB board and it may have been business as usual. The RBI had again made no effort to question the move. I then wrote to former Finance Minister Jaswant Singh asking how Gelli could be back without a full exoneration. I was told that ‘‘my concerns’’ were being ‘‘addressed by the RBI’’. On prompting from the Finance Ministry, the RBI induced Gelli to resign again and told the media that their permission wasn’t sought for the re-induction.
We then come to the end game leading to GTB’s demise and merger with OBC. That too raises several questions. Did OBC, a publicly listed bank conduct a due diligence? Can we believe that the NPAs of GTB have been crystallised at around Rs 1,200 crore and no new skeletons will pop out? And don’t the shareholders of both banks have the right to know what happened to the bid by New Bridge Capital which was reportedly willing to pump in Rs 1,500 crore into GTB? Clearly, we still need several answers from the regulator, not just a quick-fix solution.