The GTB-OBC merger was a hasty one with no due diligence exercise conducted. Analysts say that OBC has benefited from the merger rather disproportionately. To conduct the due diligence exercise, RBI appointed M P Chitale & Co. on the date of the merger. It seems that the era of good corporate governance and effective regulation by the regulator has not really dawned in the Indian banking industry.
The chairman of the State Bank of India (SBI), AK Purwar, said in an interview to Business Line, that depositors should exercise adequate care before deciding to deposit their money in a bank on the premise that that bank offers a higher rate of interest. Significantly, he said that depositors should necessarily do some due diligence by way of assessing the bank's strengths and weaknesses after analyzing its financial statements. Naturally, depositors who do not do this exercise will run the risk of losing their deposits in case of bank failures.
Indian depositors in banks were shaken up after the recent failure of Global Trust Bank Ltd., (GTB). The GTB debacle came atop several cooperative banks and a few private banks shutting down, and depositors-mostly belonging to the middle and lower classes-felt aggrieved when they were not allowed to withdraw all their deposits. As though responding to this plight of the depositors, the Union Finance Minister, P Chidambaram, while assuring Global Trust Bank (GTB) depositors that their interests would be protected, expedited the takeover of GTB by the Oriental Bank of Commerce (OBC)-a government-owned bank. According to the Reserve Bank of India (RBI), various other public sector banks, apart from OBC, desired to takeover GTB, however, it was finally decided that GTB would merge with OBC.
Notwithstanding this euphoria, the fact remains that OBC gained this "synergy" because of a wider customer-base and branch-base, while willy-nilly burdening its shareholders with Non-Performing Assets (NPAs) running into about Rs.1,362 cr (Rs.13.62 bn). As experts debate the real cost of taking over GTB, the question whether OBC couldn't have gained these advantages over a period of time by opening branches where GTB operated earlier remains to be answered. This could have definitely saved OBC from the embarrassment and problems of taking over the NPAs of GTB and adjusting GTB's losses. |
