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UTI in talks with two private banks for US-64 package

Unit Trust of India is holding discussions with two private sector banks to open a standby credit line to ensure liquidity for repurchases of US-64 units, the exit window for which opens on August one.

"It is not that only the public sector banks are involved in the exercise. As a matter of fact we are also in touch with one Indian private bank and a foreign bank for a standby credit line," UTI chairman M Damodaran said.

However, he declined to disclose their names citing 'commercial reasons'.

Asked if the banks and financial institutions have put additional conditions for extending assistance (after UTI ex-chairman P S Subramanyam and two executive directors were arrested by CBI), Damodaran said they have not set any stiff conditions.

On banks seeking letter of comfort from the Centre, he said, "lenders would like to have a sovereign guarantee from the government, which carries a zero risk."

On July 2, UTI board decided to suspend sales and repurchases in US-64 units for six months but later, after a public outcry and government intervention, devised an exit window (on July 15) for small investors, which is estimated to cost over Rs 30 billion.

US-64 scheme, with higher share of equity investments, would be made debt oriented and earnings from the scheme would reflect returns on securities, Damodaran said.

Faced with moribund capital markets and falling interest rates, Damodaran said investors would have to alter (lower) their expectations for returns from UTI schemes.

Investors had developed expectations for higher returns from the schemes, including US-64, but nothing much was done to explain the changing market and economic scenario with attendant risks, he added.

UTI will seek legal opinion on feasibility of forming a separate asset management company for US-64 scheme within the framework of existing UTI Act, he said adding, "else, this can be done once the amendments are made by the Parliament. The bill is likely to be come up for consideration in winter session."

UTI would simultaneously work to develop a structure for the AMC so that the fund can quickly move to transparent net asset value-based pricing on or before January 2002, he said.

Damodaran said, "over the years investment decision practices (higher level of exposure to equity) have moved away from the original mandate and this needs correction."

The behemoth would continue to be active in the market and would soon launch new schemes - debt and equity - to raise funds, Damodaran added.

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