The GTB-UTI Bank Merger Story

<< Previous

The SEBI Probe

Amidst all these developments, SEBI was probing the role of Parekh in the unusual price spurt in GTB stock prior to its merger announcement with UTI Bank. SEBI found that Parekh was one of the most active traders in the stock and had substantial purchases in the scrip during October to December 2000. Parekh also sold actively. SEBI sought client details from five entities, which were directly linked, to Parekh and scrutinized client details of some other brokerage houses to identify whether there was any concerted attempt to push up the share price. SEBI found that there was a prima facie case of manipulation owing to the nature of the spurt in the scrip price. In March 2001, in a report to the RBI, SEBI said there was evidence of price manipulation by GTB, and termed the price movement as "unusual" Commented a senior SEBI official, "There is also an element of insider trading pre-merger announcement when GTB share price touched Rs 114". Parekh, it was alleged was granted a credit limit of over Rs. 400 crore. Parekh denied this and put his exposure with GTB at less than Rs. 100 crore. Meanwhile, in Hyderabad, Gelli was tight lipped over Parekh's hand in propping up the shares in a bid to wrangle a better swap ratio ahead of the merger announcement.

However, sources said that GTB's total exposure to Parekh and his associate companies could be as much as Rs. 250-300 crore at one time, which was clearly above the prudential limit of 20% of net worth set by the RBI. In several meetings with Businessworld, Gelli admitted that GTB had given loans to over 200 brokers (including Parekh) in 2000. Gelli said that GTB had lent at least Rs. 118 crore to Parekh. SEBI conducted an investigation to find out if Gelli used his influence with the brokers to rig the bank's scrip price to get a favourable swap ratio for the proposed merger.

Parekh and his companies purchased huge chunks of GTB stock in the period November-December 2000, prior to the merger. In March 2001, Gelli for the first time admitted that Parekh held close to 4% stake in GTB with another 2% held in benami transactions. GTB however denied the insider trading allegations. It said that none of the promoters purchased or sold GTB shares in the past one year. SEBI planned to complete its investigations and hand over the reports to the RBI as soon as possible; but it did not set any deadlines for completing the work. Meanwhile, the RBI refused to comments on the entire merger issue. An RBI official said, "We are awaiting the SEBI report."

Next >>