Newbridge Capital may pick up a 49 per cent stake in Global Trust Bank, which is in the process of rewriting its fiscal 2002 balance sheet by making additional provisions to take care of its bloated non-performing assets.

According to sources close to the bank, the US-based private equity fund has agreed in-principle to take a close look at GTB and a clear picture will emerge in the first week of June. Lazard India is working on the capital restructuring for the Hyderabad-based bank.

Former CEO and promoter Ramesh Gelli said: "I am not aware of the latest development. The management has approached me seeking my support for the capital raising exercise and I have assured the bank of all help."

Sudhakar Gande, the managing director of GTB, declined to confirm the development. "Lazard India is expected to submit its report in a couple of weeks and the bank at this stage would not like to comment on this," he said.

Newbridge officials were unavailable for comment. Sources in Hyderabad said that two international funding agencies had evinced a keen interest in picking up a stake in GTB.

Lazard India, which was appointed by the bank in January this year to advise it on various options of raising additional capital, is said to have brought the two investors to the negotiating table.

One of the prospective investors has even appointed an international consultancy firm to advise it on the quantum of investment and other related aspects, sources said.

Meanwhile, the bank has sought Reserve Bank of India permission to draw down about Rs 100 crore (Rs 1 billion) from the Rs 180 crore (Rs 1.8 billion)-kitty of statutory reserves to clean up the balance sheet.

The statutory reserve is created by setting aside 20 per cent of a bank's net profit every year. Under the Banking Regulation Act, a bank can draw down the reserves to offset losses only when the regulator permits it do so.

Sources said that GTB set aside 25 per cent of its net profit every year to create the Rs 180 crore kitty. The bank will need to provide for about Rs 220 crore for NPAs for fiscal 2002 balance sheet which under-provided for sticky assets.

It plans to use about Rs 100 crore from the statutory reserves and defer the rest of the provisioning to fiscal 2004, if the RBI permits it to do so.

Earlier, the RBI had conducted a special inspection of GTB's books and found around Rs 300 crore (Rs 3 billion) worth of under-provisioning by the bank in 2002. It also found the NPA level at over Rs 1,000 crore (Rs 10 billion).

An independent audit, conducted by the Hyderabad-based Bhaskar Rao & Co, pegged the underprovisioning figure at around Rs 220 crore (Rs 2 billion). In addition, GTB will be required to make another Rs 30-odd crore (Rs 300 million) provisioning for the year 2003.

If the RBI does not allow the bank to defer the provisioning requirement to next year, GTB will end up posting a net loss for the year and its capital adequacy ratio too will go down to less than the required 9 per cent, a source close to the bank said. In the first three quarters it posted a profit of around Rs 20 crore. (Rs 200 million).

Following the reopening of the 2002 balance sheet and making additional provisioning, the bank's 2002 result will also undergo a dramatic change from a net profit of Rs 40.25 crore (Rs 402.5 million) to a net loss of Rs 170 crore (Rs 1.7 billion), the sources said.