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Money > Reuters > Report August 1, 2001 |
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Banks voluntarily offering credit, says DamodaranBanks have not been pressured into providing credit to the Unit Trust of India, the nation's largest mutual fund manager, for meeting redemptions in its flagship scheme, the UTI chief said on Wednesday. "There was initially a feeling that banks were being arm-twisted into lending to UTI," said chairman Meleveetil Damodaran. "Far from it, they are volunteering." "Sometime tomorrow morning, a foreign bank is coming to see me with just that kind of offer...'we are also willing to give you a line of credit'," Damodaran said during an interview. Damodaran was speaking on the day the repurchase window for units in UTI's flagship US-64 fund reopened after redemptions were suspended last month. UTI, which manages Rs 575 billion in assets, stunned investors and rattled Indian financial markets when it announced on July 2 it was freezing redemptions from the massive fund for the remainder of 2001 due to a surge in redemptions in the April-June quarter. After a huge public outcry, UTI partially reversed the decision on July 15, saying it would allow investors to redeem up to 3,000 units each from August 1 to May 31, 2003. Lines of credit The domestic media have been speculating that the UTI could face redemptions of Rs 50 billion to Rs 60 billion over the next two to three months. To meet claims without having to aggressively sell stocks and bonds in the open market, UTI has arranged various lines of credit. Damodaran said UTI had arranged a line of credit from a consortium of 19 state-run banks led by the State Bank of India, which has already lent 15 billion rupees. "The line of credit that we have from banks far exceeds our requirements," Damodaran said, but declined to say exactly how much credit had been secured. He would only describe it as more than was likely to be needed to cover redemptions until the Indian stock market recovered, eliminating concern over the fund's depressed net asset value or the current market value of its portfolio. "We did look at the best scenario, we looked at the medium kind of situation, we looked at the worst kind," Damodaran said, explaining the process UTI followed in calculating how much credit was needed to avoid being compelled to conduct a fire sale of its massive stock and bond holdings. "We have tied up much more funds than we need for the worst case. And if this morning is any indication, I think we have tied up far, far more than we need." "The information that we have got until now is that there is hardly any presence at the UTI counters," Damodaran said. "Ordinarily one would have expected that if there was pressure of the kind that was talked about, there would have been queues at 10 in the morning when the office opened," Damodaran said. "That has not happened." YOU MAY ALSO WANT TO READ:
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