Established in 1993 and headquartered at Secunderabad, the Global Trust Bank (GTB) was promoted as a private sector bank by Ramesh Gelli, Jayanta Madhab and Sridhar Subasri against the backdrop of the government’s policy of deregulation and liberalization. With a 40-percent contribution by the core promoters, the bank was the first in India to attract equity participation from two international multilateral institutions — International Finance Corporation (IFC) and Asian Development Bank (ADB) — the only other major shareholders.

The bank had a network of 104 branches and 275 ATMs in 34 towns/cities across the country. Retail banking products, wholesale banking products, treasury products, investment banking products, nonresident Indian products, depository services and advisory services were some of the offerings the bank has served up. GTB was once touted to be one of India’s best before it succumbed to staggering losses and non-performing assets.

For the year ending 31 March, 2002, the audited balance sheet of GTB showed a profit of ₹40 crore while in September 2002, the annual inspection report of the Reserve Bank of India (RBI) reported negative net worth, a fact, confirmed by an external auditor in February 2003. It is hard to believe auditors, who are members of the ICAI appending their valued names to suspect numbers.

It was informed by the media that, the RBI has taken up the issue with the ICAI, but that will not remove public doubts over audited bank balance sheets. Auditors were changed on the advice of RBI and a monthly monitoring of GTB by the RBI was put in place.

On July 24, 2003 GTB was put under moratorium by the RBI.

Case Questions

1. Imagine yourself as part of the new auditing team in 2003. Under which accounting standards would you treat the findings of RBI? Discuss.

2. What could be the possible reasons behind the GTB’s old auditing team not revealing the true picture?