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CCEA may announce UTI bailout package on Sat

Cabinet Committee on Economic Affairs is likely to finalise the long-awaited bailout package for the beleaguered Unit Trust of India to meet liabilities on its flagship US-64 and assured return schemes.

"A package is likely to be finalised for UTI tomorrow," official sources said without giving further details.

UTI might require a payout of Rs 6,400 crore (Rs 64 billion) to meet the shortfall arising out of the difference between the net asset value and guaranteed price per unit as on the date of redemption.

Besides, a line of credit of Rs 1,400 crore (Rs 14 billion) has to be arranged from banks to meet the monthly income plan (MIP-97) redemption in October end.

The government has already given Rs 800 crore (Rs 8 billion) cash support to UTI in two tranches for meeting redemption pressure under US-64. An additional Rs 500 crore (Rs 5 billion) would be required this financial year for US-64. For the MIP-97 scheme maturing by Saturday, the government has provided a sovereign guarantee of Rs 1000 crore (Rs 10 billion) line of credit from banks.

Besides bailout package for UTI, the CCEA is likely to give a green signal for extension of 12-year recapitalisation bonds worth Rs 5000 crore (Rs 55 billion) issued to several nationalised banks in 1994. This move would enable banks to raise additional capital.

Along with the extension of the tenure of the bonds, the interest rate could be reset, the sources said.

The financial liabilities on account of US-64 would only be Rs 1,300 crore (Rs 13 billion) by this year-end. Of which Rs 300 crore (Rs 3 billion) was given last year. An additional Rs 500 crore (Rs 5 billion) was provided in the first batch of supplementary demands for grants that was approved by Parliament in the monsoon session.

The government would have to make provision for an additional Rs 500 crore (Rs 5 billion).

The remaining liability of Rs 5,100 crore (Rs 51 billion) would occur in April-May next year when the remaining holders of US-64 are expected to redeem.

For meeting this liability, government was considering various options including issue of bonds.

The bonds that are proposed to be issued would be tradeable in the secondary market on the lines of oil bonds enabling the country's largest mutual fund to offload, whenever required, funds to meet the shortfall in the US-64. This exercise would be virtually revenue neutral involving no cash outgo to the exchequer.

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