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High level panel discussed issue in June

Subhomoy Bhattacharjee

Notwithstanding Finance Minister Yashwant Sinha's claim that he was in the dark about the goings on in Unit Trust of India, the high level committee on capital markets which is headed by the RBI governor and includes the finance secretary and Sebi chairman had met in early June where the developments in UTI did figure.

The agenda for the meeting included a review of the recent stock market developments as also a review of the action taken on the recommendations made by the 1992 joint parliamentary committee on stock market irregularities.

The review of the JPC report included a closer look at UTI whose role has again turned suspect in the proceedings of the current JPC probing the stock scam which rocked the markets immediately after Budget this year. Incidentally, the high level committee was set up in the aftermath of the 1992 scam to keep a close watch on similar developments.

Among the other indications that could have given Sinha a wind of what's happening in the capital markets, were the monthly reports on the banking system that RBI puts out, plus the review of the financial institutions that immediately precedes a budget exercise when the budget division receives dividend from them. UTI pays no dividend as there is no government investment in it, but because of the Rs 33 billion Special Unit Scheme that the government subscribed to in 1999, it has to send a report on the Trust's finances to the government and especially that of US-64.

Interestingly, while Sinha may protest that he was kept unaware of the worsening situation in US-64 till June 30, the lower level officials in the ministry were apparently not so much in the dark.

According to sources, in mid-May a letter did arrive in finance ministry addressed to finance secretary about the spate of redemptions in the flagship scheme of UTI. And again, not surprising for a government set up, the relevant contents of the letter rapidly became public in North Block, as a result of which there was a rush to withdraw from the scheme.

When quizzed about it in Parliament on Thursday by former Finance Minister Manmohan Singh, Sinha ducked the issue.

While exact figures are difficult to quantify, the withdrawals by even lower rung officials were largely concentrated in the fag end of May when most of the senior officials of the finance ministry were on different trips abroad after a hectic budget session.

But the most damaging comment on the entire issue has come from sources in JPC who said "the finance minister was in favour of removing then UTI chairman P S Subramanyam even as early as May, but could not take any action till there was a clinching misdeed" , which the former chairman provided by announcing the freeze on the sale and repurchase of US-64 on July 2.

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