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July 19, 2001
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Money > Business Headlines > Report July 19, 2001 |
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Banks want govt's comfort letter for loans to UTIBS Banking Editor A majority of public sector banks have rejected the proposal of pumping in liquidity in Unit Trust of India through buying stocks held under its flagship US-64 scheme. These banks are, however, willing to extend clean loans to UTI for a short period, provided the Centre is willing to back this exposure with a comfort letter ensuring timely payment of interest and principal amount. UTI chairman M Damodaran is expected to meet Union Finance Minister Yashwant Sinha in Delhi on Thursday to give final touches to the Rs 40-billion liquidity support package. Damodaran met select bankers in Mumbai today to review the plan. Chiefs of State Bank of India, Bank of Baroda, Bank of India, Central Bank, Punjab National Bank and Corporation Bank attended the meeting. "UTI is working on a three-pronged liquidity support strategy. The three prongs are seeking bank loans against pledge of shares, generating liquidity by selling bulk stocks and seeking clean loans against a comfort letter from the government. It seems that government is not averse to the idea of offering comfort to the bankers," said a source familiar with the development. Although insurance companies like LIC and GIC are not averse to the idea of buying out stocks from the US-64 portfolio, majority of the banks are not willing to buy stocks as it will raise their capital market exposure. Bankers prefer to give clean loans on the back of government's comfort letter. If the Centre is not willing to issue the letter, bankers are planning to offer an overdraft facility to UTI against the pledge of shares. In this case, they are insisting on a 40 per cent margin for the facility. The interest rate is likely to be fixed at below short-term prime lending rates of banks. The short-term PLR of public sector banks is now pegged at around 10.5-11 per cent. UTI is seeking a Rs 40-billion liquidity support from banks. This is besides the Rs 15 billion line of credit already tied up with the State Bank of India through the repo route. The liquidity support proposal was discussed threadbare on last Friday, at a meeting held at LIC zonal office in Delhi. Jaimani Bhagwati, joint secretary in charge of capital market division in the ministry of finance, was present at the meeting. At that meeting, the government explored the idea of selling off US-64 stocks to the banks through off-market deals. Powered by YOU MAY ALSO WANT TO READ:
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