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Global Trust Bank to offer stake to foreign partner - Views on News from Equitymaster
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  • Feb 8, 2000

    Global Trust Bank to offer stake to foreign partner

    Global Trust Bank (GTB) is looking out for a foreign partner with a strong technological edge and is agreeable to offer 15% of its equity to the partner. Global Trust Bank is one of the aggressive players in the private banking sector. It reported a net profit of Rs 709 m for FY99. Its advances grew by 21% to Rs 21.2 bn in FY99 and its deposits for the same period grew by 25% to Rs 41 bn.

    International Finance Corporation (IFC), the private sector funding arm of the World Bank holds a 10% stake in Global Trust Bank. IFC is in the process of identifying this partner and this should be completed by May'2000. Global Trust Bank is likely to offer this equity to a foreign partner by means of a private placement without issuing fresh equity.

    GTB needs technology in the areas of delivery, controls, online customer evaluation and credit risk assessment systems on the retail side.

    Technology is becoming very important for the banking industry to provide efficient and speedy customer service and also to expand aggressively. Hence it is not surprising that GTB is on the look out for a technology partner and is even willing to give an equity stake to them. Also, as they are specifically looking out for a foreign partner, they would be able to take advantage of the global bank network of their partner and thus increase the scope of its transactions. Other private banks who use technology to expand their business are HDFC Bank and ICICI Bank. Technology is useful as brings down the cost of delivery and also enables the bank to increase the productivity of employees and also improve on its services to customers. For instance few years earlier many Indians still had to go to banks during office hours to deposit or withdraw cash. However thanks to technology they are now able to do these transactions at any time through ATMs.

    However from the banks perspective it is also important to evaluate the returns from such investments in technology. There have been a few banks who have invested in technology in a big way but their returns and margins have not improved from such investments.

    In a newspaper article, the chairman of GTB, Mr. Ramesh Gelli has stated that the Bank expects to report a net profit of around Rs 950 m for FY2000, against Rs 708 m net profit reported in FY99. Also he expects the bank's non-performing assets (NPAs) to come down in FY2000 due to ongoing recovery in the industrial sector.

    Market View:
    Earlier GTB was not a favourite of analysts due to its small size, however now with the economic recover bank stocks have come into limelight and GTB has been rated a 'BUY' by a few analysts.



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