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Govt to provide Rs 5 billion cash assistance to UTI

P Vaidyanathan Iyer & Sidhartha

The government has decided to provide cash assistance of up to Rs 5 billion to Unit Trust of India in the current fiscal and has linked further support to milestone-based reforms in the mutual fund behemoth.

The package was finalised after a series of meetings M Damodaran, chairman, UTI had with C M Vasudev, secretary, department of economic affairs and later with finance minister Yashwant Sinha.

According to finance ministry officials, UTI does not expect large redemptions once its flagship Unit Scheme - 64 shifts to the net asset value mode from January 1, 2002. "The redemptions till now have not been more than Rs 1.40 billion and we expect a maximum of another Rs 2-3 billion in the next three months," an official said.

Officials said sale and purchase of US-64 units would start from January 1 at the NAV prices. "However, the government will provide comfort to UTI in meeting any unforeseen redemption pressures due to excessive stock market volatility," an official said.

The officials said the liability to the Centre would be provided for either in the Budget or the final supplementary demand for grants. "It will in the nature of a contingent liability on the government," an official said.

Officials also said that the additional support would be tied to the reforms to be carried out by the trust including making US-64 Sebi compliant. The finance ministry is discussing the finer aspects of UTI's restructuring and milestones would be finalised over the next couple of days, they added.

The secretary, department of economic affairs, also ruled out subscribing to any liquidity bonds to write-off non-performing assets in UTI. He told reporters that the Centre would support only to the extent of the difference between the NAV and the administered price of US-64 units.

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