Global Trust to spruce networth to enter insurance JV - Views on News from Equitymaster

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  • Mar 27, 2000 - Global Trust to spruce networth to enter insurance JV

Global Trust to spruce networth to enter insurance JV

Mar 27, 2000

Global Trust Bank (GTB) plans to increase its networth by way of a preferential issue to institutional investors and mutual funds. The main reason for doing so is that it is keen to enter the insurance sector and does not currently qualify for this. The recent guidelines of banks entry into the insurance sector specifies that a bank should have a minimum networth requirement of Rs 5 bn.GTB is one of the aggressive players in the private banking sector. 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. It reported a turnover of Rs 1.9 bn for the 3QFY2000, while net profit reported for this period was Rs 279 m.

GTB's current networth stands at around Rs 3.6 bn. It is keen to take this upto Rs 5 bn by March'2000 so as to enable it to qualify to take a stake in an insurance joint venture.

GTB is planning on a private placement to mutual funds and institutional investors. They plan to issue 11 m shares to mutual funds and investors of the total 26 m shares planned to be issued. This issue should be done at around Rs 84 based on the banks current share price. They are also in the process of identifying a foreign partner who will be able to pick up a large stake in the bank.

As GTB is concerned on increasing its technology levels it is keen that the foreign partner is able to provide this, hence in all likelihood this partner could be a bank who would have the necessary technological skills to provide to GTB.

International Finance Corporation (IFC), the private sector funding arm of the World Bank holds a 9.6% stake in Global Trust Bank. This stake is expected to upto 12.% after the preferential issue. IFC is in the process of identifying this partner and this should be completed by soon.

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 essential for banks to provide efficient and speedy customer service. Hence GTB is on the look out for a technology partner and is even willing to give an equity stake to them. As they are looking out for a foreign partner, they would be able to take advantage of the global branch network of this partner. Other private banks who use technology in their operations are HDFC Bank and ICICI Bank.

Technology brings down the cost of delivery and also enables the bank to increase the productivity of employees. However from the banks perspective it is also important to evaluate the returns from investments in technology. There have been a couple of banks who have invested in technology in a big way but their returns and margins have not improved.

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

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