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Banks promise more support to UTI

State-run banks have agreed to provide more loans to help cash-strapped Unit Trust of India, the country's largest mutual fund management company, a top bank official said on Thursday.

"Whenever there is a need for more liquidity we will provide it. We will support the UTI as the government is also backing it," the head of a state-run bank said on the condition of anonymity.

Analysts say UTI is facing a cash crunch due to heavy redemptions in May and June sparked by falling markets and fears of a dividend cut.

The bailout efforts are being led by the State Bank of India, the country's largest commercial bank, he said.

Chiefs of select state-run banks met UTI's top officials on Wednesday evening to work out ways to rescue the mutual fund company.

UTI officials were not available for comment.

The source said SBI has already provided Rs 15 billion against government securities to state-run UTI to meet cash flow mismatches.

On July 2, UTI rattled Indian financial markets, when it froze redemptions in its largest scheme, US-64. Some 20 million investors own units in the scheme, which has invested three-quarters of its portfolio in equities.

To ease the impact on small investors, UTI on Sunday announced it would allow all investors to redeem up to 3,000 units each between August 1 and May 2003 under a special price offer.

UTI manages Rs 575 billion in assets -- about two-thirds of the total assets of the Indian mutual fund industry.

Some 41 million investors have invested money through its massive offering of 87 funds. Its flagship US-64 fund is the largest and accounts for a fifth of its assets.

Redemptions worry

If redemptions rise, UTI will need to raise more cash from the banks, the banker said.

"The UTI has huge assets, both stocks and government bonds. But we are more comfortable in providing loans against government bonds as it is safer," the official said.

Indian newspapers have been speculating that a Rs 30-40 billion package is being prepared by the state-run banks and insurance companies such as the Life Insurance Corporation and term lender Industrial Development Bank of India.

The bank official said a plan was being prepared in consultation with the finance ministry, but so far nothing has been finalised.

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