The Reserve Bank of India is likely to approach the State Bank of India to take over the beleaguered Global Trust Bank, which reportedly has bad loans to the extent of Rs 1,500 crore (Rs 15 billion).
The central bank, in consultation with the government, imposed a three-month moratorium on the bank's transactions on Saturday.
A finance ministry official said while the government was considering merger as a way out, the RBI had the option of liquidating the bank but this would not be in the best interests of Global Trust Bank's depositors.
If the deal with the State Bank of India does not work out, the RBI is likely to approach Andhra Bank and the Bank of Maharashtra. It is also not averse to wooing a foreign bank to take over Global Trust Bank as a wholly owned subsidiary.
State Bank of India executives said they had not heard from the government on a possible merger with Global Trust Bank.
However, if "appropriate concessions are given", the country's largest bank will not mind taking over Global Trust Bank and its Rs 260 crore (Rs 2.60 billion) accumulated losses.
On two previous occasions, banks put under moratorium have been merged with public sector banks: Benares State Bank with Bank of Baroda and Nedungadi Bank with Punjab National Bank.
At its first board meeting on Sunday after the moratorium, Global Trust Bank decided to put in place easy and quick processing for depositors needing amounts higher than Rs 10,000 for meeting contingencies.
Sudhakar Gande, managing director of Global Trust Bank, said the RBI-nominated directors had been inducted on the board. The board also discussed the moratorium norms regarding post-dated cheques and salary accounts and an announcement would be made tomorrow, he said.
The RBI said it was confident it would be able to resolve the issue within the three-month moratorium. "All operations of Global Trust Bank have been frozen so that possible suitors can undertake due diligence," said Usha Thorat, executive director, RBI.
The RBI also said demat accounts and safe deposit lockers of customers in the bank would operate as usual and that it was making arrangements to provide adequate cash at Global Trust Bank branches for permitted withdrawals.
If the State Bank of India does not find the terms attractive, the central bank may approach Andhra Bank or the Bank of Maharashtra to take over what is today a balance sheet size of Rs 6,500 crore (Rs 65 billion).
Global Trust Bank results for 2003-04, filed with the RBI, show deposits to the tune of Rs 6,920 crore (Rs 69.20 billion) and advances of Rs 3,276 crore (Rs 32.76 billion) and an exposure of Rs 1,560 crore (Rs 15.60 billion) to the capital market. The capital-adequacy ratio is far below the stipulated figure at a negative 0.07 per cent.
