Search the Internet          Tips  Sites: Finance, Investment

'We have the strength to be the largest private sector bank in India'

The Money Chat with Ramesh Gelli

Saturday, January 27 afternoon. Two days after announcing the sensational merger of Global Trust Bank with UTI Bank, GTB chairman and managing director Ramesh Gelli is busy, but not with details of the deal which would create India's largest private sector bank, in terms of deposits. He is interacting with GTB's hyperactive treasury personnel, at a conference at the seven-star Hotel Regent at Bandra in northwest Bombay.

Earlier in the day, he was at the Oberoi hotel in south Bombay for a media conference to announce the share-swap ratio of nine UTI Bank shares for four GTB shares or 2.25: 1.

GTB branch buildings in Gujarat suffered some damage due to the killer quake. Gelli and GTB Executive Director Sridhar Subhasri brief their staff how their colleagues in Gujarat are being taken care of. "First of all, they have been moved to places of safety. They have been told they are free to travel to their homes, wherever they are in India, at the company's cost," Gelli tells them.

One staffer is still focused on the implications of the merger. "Sir, what about the company's accommodation policy in Bombay? UTI Bank's record, I believe, is better." Evidently, the treasury conference was scheduled much before the merger announcement; the news seemed to cause concern among GTB employees.

Gelli, the small-but-big man of banking, uses the opportunity to allay such fears. "We will match or better the best. You may have doubts now. But after the merger, you will have no issues to discuss," he assures them, evoking smiles all around. "Let me make one thing clear. Let not this merger news distract you. I don't want GTB to miss targets. Let's outperform our targets for the year."

That plea is necessary because the race for plum posts in the merged entity has begun in right earnest, with top executives on either side throwing their hats into the corporate ring.

Soon after the conference, Gelli was in a rush to catch the flight back to Hyderabad, when Associate Editor Y Siva Sankar spoke to him for an exclusive interview.

Why UTI Bank?

(Pauses, thinks.) We found there were a lot of similarities in terms of culture, value systems and business focus between Global Trust Bank and UTI Bank. We also found there was a spirit of equality that was demonstrated in the initial discussions we had. And, therefore, we found it was the most attractive fit for Global Trust Bank.

The announcement seems to have taken industry observers by surprise. Is there any significance to the timing of the announcement?

Yes. The bank itself was thinking of pursuing very aggressive growth plans. We have had a programme conducted by two professors from Harvard Business School very recently. And then, even when we mapped the aspirations of the people, it was felt that people were seeking very aggressive growth. In fact, many people had said we should look at acquiring a bank or merging with a bank.

This is how the thoughts came about. But the discussions with UTI Bank were very, very sudden and accidental. And then it just materialised.

There is a view that the promoters's stake in private banks should not exceed 20 per cent, in keeping with the promise made when banking was deregulated. Do you agree?

I think at this stage, I am not sure whether that is the right way of looking at things. I think it is necessary that first the banks must grow to be very large, sound, successful banks where management practices are instilled into the organisation.

Which means that, organisations, like banks particularly, must make sure they have a very high level of interest in the management practices. That comes with the higher stake of promoters.

But as banks continue to grow large, I think automatically, the dilution (of promoters' stakes) will take place.

My guess is that in about three to five years's time, there will be many new banks where the promoters' equity will be just about 20 per cent or so. Maybe 20 to 26 per cent together.

The GTB-UTI Bank merger is being perceived by some people as a takeover of a private sector bank by a public sector bank. (UTI Bank is owned 60 per cent by UTI while some 12 per cent is held by insurers LIC and GIC.)

No. I disagree. There are two things I should also mention.

This whole merger has happened in the spirit of equality. There has been no question of acquisition either way. For example, we agreed that the registered office will be in Hyderabad and the business offices will be in Bombay. There will be support functions out of Hyderabad.

We agreed that the chairman and managing director will be from UTI Bank and executive director will be from Global Trust Bank. We agreed that the name of the merged entity will have UTI Bank and Global Bank. We agreed that UTI Bank, you know, for all the technical purposes, will merge into Global Trust Bank.

And then, we agreed that we will jointly promote an insurance company.

So, there is no question of anybody dominating the other. It is actually a question of equality in terms of everything that we had discussed and decided.

You have just mentioned that the CMD of 'UTI Global Bank' will be from UTI Bank. So what role do you see for yourself?

(Smiles) Two things. One, my association with Global Trust Bank will continue because I am going to maintain my own stake in the bank. It will continue to be there. I will be on the board of the bank. I will continue to be on the committees, important committees.

Two, I will help the management with whatever knowledge I have gathered to make sure that the transition is smooth. So there is lot of work to be done. And there are going to be terrific opportunities which I will also help the new bank to pursue.

Some people have been pointing fingers at the movement of share prices of both UTI Bank and Global Trust Bank in the run-up to the merger announcement. How do you think the prices will behave beginning Monday?

You know it's very difficult for me to say because I have never really understood the dynamics of the market.

I remember that the Global Trust Bank's share price was always above Rs 90. It, in fact, went up to Rs 115 for a quite many days in the recent past. Then, I do not know the reason why, it came down, within a matter of a few months, to something like Rs 80. And I am not able to also say why it again went up to Rs 90!

So, I am only looking at the minimum and the maximum, and wondering: 'Are we moving in the right direction?' (Smiles)

Frankly, the day-to-day fluctuations don't bother me.

Do you think the latest price movement is in the right direction, whatever that means?

I expect that, you know, there will be better valuation because... one, now we have become a very large bank. Two, we are able to bring a very good brand name. Three, the net worth at Rs 10 billion gives new kinds of opportunities.

So, my guess is that, I expect that the market will valuate us better, and will give a better discount rate.

Where there any points of disagreement during the negotiations for merger?

I must give full credit to P S Subramanyam, UTI chairman, who was actually mediating between both of us. I think he has tremendous amount of maturity and ability to handle very difficult situations. So, I think, his presence and participation helped in resolving any such issues, actually eliminating and avoiding such issues, and ensuring that such situations do not crop up at all.

What is there in this merger for shareholders of both banks?

Shareholders will stand to benefit because straightaway, I expect that the P/E multiple will go up. There is going to be better discounting for the shareholders.

The 2.25:1 share-swap ratio, some people say, is not fair to GTB shareholders.

I disagree. I do admit a share-swap ratio of 2.5:1 was mentioned during talks. Perhaps, that is what people expected. However, if you look at the share-swap ratios of other mergers of banks in recent times, the best ratio is 2:1. So we agreed on the median point.

You should look at it in a long-term perspective. Then, you will realise it is definitely fair to the Global Trust Bank shareholder. To pre-judge the issue with short-term gains in mind is not proper.

This is not a takeover of one bank by another bank. It is a merger of two banks on an equal footing. The merger is being done most amicably. The new entity will have the backing of a financial powerhouse like UTI which has assets worth Rs 700 billion. Today, we have the strength to be the largest private sector bank in India.

I believe the 2.25:1 ratio, therefore, is a very healthy figure.

The 21st century is seeing a spate of mergers of banks. Where do you think the banking industry in India is heading?

In 1994, when new banks came up, I think in the last six years, they have been able to bring a substantial change in the banking culture. What is now going to happen is that the second wave of reforms, in terms of building much stronger banks in the private sector, will start.

In fact, this merger, my guess is, will give that kind of a boost to the consolidation in the banking industry. I will not be surprised if, within the next 12 months, more consolidations happen.

Twelve to 18 months, I would say. Because the new banks are showing the way, demonstrating the direction in which the things are moving.

You have been instrumental in creating Global Trust Bank from scratch. In many ways, GTB is your baby, so to say. How does it feel that GTB will cease to exist?

No. Fundamentally I see that this institution will have terrific opportunities for growth. This can become a Rs 500 billion institution in three years. It can turn out to be the most profitable and very successful bank in the next two to three years. I see very bright prospects for this institution.

Joint ventures, it is said, fall through after a few years of initial euphoria, mainly due to ego clashes. Does UTI Global Bank have any built-in shock-absorbers?

As I mentioned, one of the things is the presence of Subramanyam, chairman, UTI. He has taken lot of interest. His sheer presence and participation will ensure there will be no difficult situations that may arise.

Second thing, we have also agreed that P J Nayak as CMD of the merged entity and Sridhar Subhasri as the executive director, Subramanyam and myself -- the four of us -- will provide constant support to this initiative.

And, therefore, we are taking all measures to make sure that problems, as and when they arise, are resolved immediately, without letting them grow into major disputes.

Chat transcript: 'If there are other good fits, more mergers might take place'

OTHER BANKING/FINANCE INTERVIEWS:

Yashwant Sinha, India's Finance Minister
P S Subramanyam, chairman, the Unit Trust of India
K V Kamath, CEO and MD, ICICI Limited
Shekhar Sathe, CEO, Kotak Mahindra AMC
Aditya Puri, MD, HDFC Bank Limited
Sampathkumar Gopalakrishnan, CMD, Vijaya Bank
P S Shenoy, CMD, the Bank of Baroda

Money

Interviews

Tell us what you think of this interview