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3 banks, LIC to hold equal stake in UTI-II

BS Economy Bureau in New Delhi

The State Bank of India, the Bank of Baroda, Punjab National Bank and Life Insurance Corporation will each hold stake worth Rs 2.5 crore (Rs 25 million) in UTI-II, to be set up after splitting the Unit Trust of India.

The public sector banks and LIC have agreed to pick up the entire Rs 10 crore (Rs 100 million) capital in the asset management company that would come into existence after the promulgation of the Ordinance to repeal the UTI Act, 1963. The Union Cabinet on Monday approved the finance ministry's proposal to split the present UTI and set up two entities through an Ordinance.

Briefing reporters after the Cabinet meting, finance secretary S Narayan said UTI-II would be an asset management company and manage all the net asset value-based schemes of the present UTI. He said the Cabinet nod operationalised the approval given by the Cabinet Committee on Economic Affairs on August 31.

Narayan said UTI-II would be divested and the realisation, net of expenses, would be transferred to the central government. Finance ministry sources said the government would divest the company entirely.

It is expected that UTI -I, comprising US-64, assured-returns schemes, Special Unit Scheme-99 and its Development Reserve Fund, will be formed as a trust under the Indian Trust Act. The facility for the redemption of US-64 at the committed prices will continue beyond May 2003.

The finance secretary said the employees of UTI would be treated as employees of UTI-II. For the purpose of managing the schemes under the administrator-governed UTI-I, the Centre may ask for the services of these employees on terms mutually decided.

The finance secretary added that the present decision did not amount to a bail-out for UTI. Instead, by ring fencing the liabilities of UTI, a permanent and final solution was now available.

UTI-II, according to Narayan, will be set up jointly by a few public sector banks and financial institutions. In UTI, 80 per cent of the Rs 450.50 crore paid-up capital was held by the Industrial Development Bank of India (IDBI), SBI and LIC. However, IDBI will not be part of the new setup.

The UTI repeal Ordinance will be replaced by a Bill for legislation in the winter session of Parliament. The official release said UTI-I would not launch any new scheme. The interest and dividend on the assured-returns schemes would be reset at lower levels while some would be considered for foreclosure, the release added.

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