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Govt may give another Rs 5 bn to UTI

The government is likely to provide a second tranche of Rs 5 billion to the beleaguered Unit Trust of India as part of the bailout plan to enable the fund to meet its payment obligations in assured return schemes.

The second tranche is in addition to the Rs 5 billion already committed in the supplementary demand for grants recently approved by Parliament taking the budgetary support to UTI to Rs 10 billion.

This was indicated by finance ministry officials after UTI chairman M Damodaran held a marathon meeting in New Delhi on Monday to work out details of the package, which could go up to Rs 50 billion.

"The total package for UTI is for about Rs 50 billion. But we are yet to decide on the way of funding it," the officials said.

Monday's meeting lasting for about four hours followed Group of Ministers' meeting last week to decide on the fate of UTI, IDBI and IFCI.

The GoM, headed by Finance Minister Jaswant Singh, had already endorsed the view of assisting the development financial institutions especially UTI, in their revamp process.

The proposals of the GoM would be shortly taken up by the Cabinet Committee on Economic Affairs for approval.

UTI had demanded about Rs 50 billion in the light of a negative reserve of about Rs 37 billion and payment obligation for about Rs 9 billion for two of its MIP schemes maturing this year.

In the face of redemption pressure of assured return schemes, the government had already provided a guarantee for raising Rs 15 billion from banks and FIs.

Damodaran declined to comment on the package but said the fund would launch two schemes -- a regular income scheme and another variable investment scheme -- by this month end.

"We have got Sebi approval for the two schemes. The offer documents are under print and we will launch them in August end," he said.

The urgency in improving the financial health of UTI follows government's commitment to make the fund Sebi compliant by this fiscal.

The government intends to repeal UTI Act of 1963-64 and professionalise the operations of the fund.

Under the Sebi (Securities and Exchange Board of India) model, a mutual fund should have a 3-tier structure comprising a sponsor, a trustee and an asset management company.

The government is in the process of talking to the stakeholders -- Industrial Development Bank of India, Life Insurance Corporation, State Bank of India and other banks -- to assume the role of sponsor and then manage the fund.

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