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Finance ministry plans cash support to UTI

Subhomoy Bhattacharjee

In a three-pronged strategy, the Centre has decided to lend fiscal support to the Unit Trust of India besides subscribing to liquidity bonds and asking banks to further extend the Rs 30-billion line of credit to the Trust.

Senior finance ministry officials told Business Standard the Centre cannot choose to ignore the cost to be borne by the over 20 million investors in UTI's flagship US-64.

"The government has to arrive at a balance between the cost to the exchequer and the cost to the investors," a top official said. He further added that the difference between the actual net asset value of US-64 and the administered price has to be met by the Centre.

Officials also said that UTI has resolved to make US-64 NAV-based on January 1, 2002. The administered price of US-64 units in January would be Rs 10.60 per unit.

Finance ministry officials are meeting senior UTI executives tomorrow to hammer out the details of the package. "It will be announced this week itself," an official said.

They said the Malegam and Tarapore committee reports have primarily looked at the interest of the Trust. The government is equally concerned about the impact of any restructuring on the individual investors as well.

According to an internal report of UTI, about 54 per cent of the Rs 127.78-billion paid-up capital of US-64 falls in the less than 3,000 units category. The Trust, therefore, would have to prepare its contingency plan based on such redemption pressure.

Industry sources said, while the liquidity bonds could be subscribed to by the Centre for facilitating writing-off some bad investments of UTI, the cash support would be to meet the cost difference between the administered price and NAV of US-64. In addition, the line of credit by banks would take care of any redemption pressure after January 1.

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