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July 20, 2001
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Money > Business Headlines > Report July 20, 2001 |
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Ministry averse to guarantee for banks on UTI lendingBS Economy Bureau The finance ministry is not very keen on giving a "sovereign guarantee" to the public sector banks, in lieu of loans extended to Unit Trust of India to meet possible redemption pressure on US-64. According to finance ministry officials, the government does not want to take on any additional liabilities. They added that the banks are carrying out due diligence in the matter and should be able to arrive at an acceptable solution with UTI shortly. However, newly-appointed UTI chairman M Damodaran, who met finance minister Yashwant Sinha for the first time on Thursday since he assumed charge, feels that "any lender will want a sovereign guarantee." When asked if the government had agreed to provide the comfort letter, he said, "The question arises only if I ask for a guarantee." Damodaran also said that the banks had demanded a 40 per cent margin on the short-term loans to be extended to UTI, which he said was not a problem. Describing his 30-minute meeting with the finance minister as a "courtesy call," Damodaran said he discussed all the issues that were top priority. He said several alternatives including raising loans by pledging shares of US-64 and selling stocks to institutions were available with UTI. To a pointed query on whether UTI would seek budgetary support, Damodaran said, "I do not need huge funds." As it is, there would be large-scale pressure on the fund only if two-thirds of all US-64 investors queued up for redemptions after August 1, when the freeze on the scheme is partially lifted. The UTI chairman further asserted that given the content of the new package, there would not be any redemption pressure on US-64. The Trust on Sunday had partially lifted the freeze on the scheme by allowing investors to redeem up to 3,000 units from August 1 at Rs 10 per unit, with the repurchase price going up by 10 paise per month for the next 20 months. "The small investor should stay with us," Damodaran said, adding that "in the next 20 months, we will restructure and revamp UTI." Damodaran also said that the public sector banks would lend UTI funds at sub-prime lending rates. "None of the 27 public sector banks have said no (to lending)," he said. UTI has sought a Rs 40 billion bailout in the form of loans from banks with additional support from financial institutions and state-owned insurance companies. The UTI chairman said that the Trust would get rid of some of the illiquid stocks. "We, however, intend to hold on to our equity portfolio. This is not the right time to sell," he said. The Trust will also move to less of equity in the future, Damodaran added. Powered by YOU MAY ALSO WANT TO READ:
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