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June 25, 2001
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Money > Reuters > Report June 25, 2001 |
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UTI seeks Rs 15-bn contingency loanThe Unit Trust of India, India's largest mutual fund manager, has asked State Bank of India for a Rs 15-billion loan to meet temporary cash flow mismatches, a senior UTI official said on Monday. "We have asked for a stand-by facility to bridge the gap which may occur after the July 2 trading changes," UTI chairman P S Subramanyam said when asked to confirm a newspaper report that UTI was seeking a loan to cover dividend and redemption payments. Subramanyam was referring to a ban by capital market regulator Securities and Exchange Board of India on a century-old carry-forward facility. The ban comes into effect from July 2. The facility accounted for more than 90 per cent of trades at India's 23 bourses at one time. It is being abolished after being blamed for causing excessive market volatility and for allowing speculators to wield too much influence. Carry-forward trading allows traders to carry over positions from one settlement period to the next by paying a margin and effectively allows the speculator to take larger positions than otherwise possible. Analysts said traded volumes in the cash market, which have already fallen to a third of their normal level after the announcement, could drop further after the facility is withdrawn. They warned any selling by UTI after the July 2 ban to meet redemptions could be against its own interest as the stock market would be unable to absorb any large-scale selling. Subramanyam said the loan would not be drawn down immediately and would be used only in the event of cash flow differences. Recent media reports have said that US-64, UTI's flagship scheme and the country's largest mutual fund, is facing redemption pressures ahead of its move to market-based pricing of its units, which is expected by February next year. US-64 declared a repurchase price of Rs 14.25 for the month of May. It does not make public its net asset value but analysts estimate it is currently below Rs 10. The Economic Times said on Monday that UTI is taking the loan from SBI, the country's largest commercial bank, to pay for growing unit redemptions.
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