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Sponsors of UTI-II to kick off due diligence

Tamal Bandyopadhyay in Mumbai

Life Insurance Corporation, the State Bank of India, Punjab National Bank and Bank of Baroda - the four sponsors of UTI-II - are appointing two firms to conduct a due diligence of the books of the entity before a formal takeover.

After the due diligence is over, the sponsors will sign a memorandum of understanding (MoU) with the government on running the AMC which will have assets worth Rs 18,000 crore (Rs 180 billion).

"Two firms will be appointed over the next few days. Only after the due diligence is over, we will sign the MoU with the government," said a banking source.

Unit Trust of India sources said the fund has nothing to do with this and it is entirely between the government and the sponsors.

The four sponsors, holding 25 per cent stake each, are yet to decide on who will head the new entity. According to sources, UTI chairman M Damodaran is likely to be appointed as the chairman of the company even though he is not a professional fund manager.

"He has already proved his worth at UTI . There is no reason why he should not continue at the helm," a source said.

The sponsors have informally discussed the issue but no formal offer has yet been made. Last week, the four sponsors registered UTI AMC Ltd which will handle Rs 18,000 crore worth of assets of 36 net asset value (NAV)-based schemes of UTI.

It is still awaiting the approvals from the Securities and Exchange Board of India. The banks also sought the approval of the Reserve Bank of India for making investments in the AMC.

"The due diligence is to ascertain the quality of assets. Once this is over, the sponsor banks will finalise the framework to run the company. All UTI employees will be transferred to the new entity at the initial stage," sources pointed out.

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