Search the Internet          Tips  Sites: Finance, Investment

Financial sector in a crisis of confidence

BS Bureaus

The financial sector is vertically divided on the impact of the arrest of former Unit Trust of India chairman PS Subramanyam and two of the Trust's executive directors. While a section strongly feels that CEOs of financial institutions must own up responsibility for their investments as well as loan sanction decisions, others feel that the government has launched a witchhunt in UTI.

Business Standard spoke to a slew of bankers, FI officials as well as fund managers. We asked them five questions:

• Was the government right in permitting CBI to raid UTI officials?

• Have these raids shaken your confidence in your ability to take commercial decisions freely?

• Will you be extra cautious now in sanctioning loans, agreeing to private placement deals and so on?

• Do you believe that politicians use FIs and banks and pass the buck when things go wrong?

• Do you see the UTI saga having a negative impact on the market?

Exactly 10 out of 20 senior officials who answered supported the CBI raid and arrests while the rest said the allegedly guilty officials should be tried at a special court. Fifty per cent of the respondents said the raids and arrests will shatter investor confidence (the UTI will never be the same again) and the other half said the government action will bring back investors' confidence in UTI.

An overwhelming majority of the respondents said the UTI episode will dent their confidence in taking commercial decisions. "You will always feel hounded by investigating agencies like CBI and CVC. You can never take a decision comfortably," said 18 of the 20 respondents. Only two respondents said as long as the decisions are commercial and not malafide, there is nothing to worry about. "There is no point in taking salary and enjoying perks if you are not willing to take decisions," said a bank chairman.

All the respondents said they will be extra-cautious in taking investment decisions now. "The UTI saga is a lesson for all of us. Particularly the public sector banks, which even otherwise are not willing to invest in the secondary market, may altogether withdraw from playing in the markets," said a senior banker.

Most of the respondents (14 out of 20) said politicians play a major role in loans and investment decisions. "This is the greatest bane of the public sector. Often the CEO takes the blame for a decision which has actually been forced on him by some external force," said a senior executive with an institution. "You are always under pressure. You must learn how to say no to these politicians," said a banker.

Most of the respondents feel that the UTI saga will have a negative impact on the market. With the UTI lying low, the FIIs will rule the show, they said. In the mutual fund industry, the private sector funds will have a better run than the public ones. Out of 20 respondents, 17 said

UTI episode will affect the market while three of them said this factor has already been discounted.

One interesting finding of this poll is that most respondents who feel politicians wield tremendous influence on the CEOs of the industry, blame the CEOs alone for this. "At least in some of the cases, the CEOs owe their chair to the politicians and because of that, they have no choice but to oblige their godfathers," they pointed out.

On the UTI saga, they felt the government should have been more discreet in carrying out investigations into the UTI episode. There is no need to wash dirty linen in public as this will only erode public confidence in the mutual fund's ability to deliver the goods. It will affect UTI's other schemes as well.

Powered by

YOU MAY ALSO WANT TO READ:
The UTI Crisis
The Rediff-Business Standard Special
The Budget 2001-2002 Special
Money
Business News

Tell us what you think of this report