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Banks don't need RBI nod for lending to UTI: Jalan

Fakir Chand in Bangalore

The consortium of banks that has agreed to lend funds to the Unit Trust of India to bail out small investors would not have to take prior approval of the central bank, said the Reserve Bank of India Governor Bimal Jalan said in Bangalore on Monday.

"There is no need for a formal nod from the RBI as banks are empowered to take such decisions in conformity with the banking regulations for lending," Jalan told rediff.com on the sidelines of the 5th annual Asia-Pacific Risk & Insurance Conference, being held at the prestigious Indian Institute of Management, Bangalore.

Jalan also clarified that the banks would have to consider UTI as an institutional customer keeping in view all the lending norms for extending loans to the largest mutual fund in the country, which got into deep trouble for suspending the sale and repurchase of its flagship US-64 scheme recently.

Jalan, however, declined to comment whether banks were allowed to extend loans to UTI below the prime lending rate of 11.5 per cent as interest rates are flexible in a narrow range within the PLR limits.

It may be recalled that the Union finance ministry had last week formulated a Rs 30-billion bail-out package for enabling UTI to lift the suspension of sale and repurchase of US-64 units for all small investors.

Besides a consortium of banks, leading financial institutions such as IDBI, IFCI, and ICICI, and insurance companies like the LIC have been directed by the ministry to extend the required funds to the UTI at around the PLR.

Armed with flush of funds from the lending institutions, the UTI had decided on Sunday to lift the ban on repurchase for small investors with a ceiling of 3,000 units per unit holder till May 2003 from next month.

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