14 july 2001

uti to be bailed out with rs 3,000 crore soft loan
mumbai: the unit trust of india has finalised modalities for raising rs 3,000 crore through a soft loan from a consortium of banks and financial institutions, including state bank of india, industrial development bank of india, life insurance corporation of india and bank of baroda.

the loan will be obtained at a sub-plr rate of interest, and is expected to be used to restructure the unit scheme 64.

following this development, the freeze on sale and repurchase of the us-64 by small investors redemption is to be lifted, although the limit of holdings of small investors is yet to be defined.
the decision for banks to lend to uti now awaits reserve bank of india approval, which is expected in ten days' time.

recession brings boom to rating agencies
mumbai: recessionary times for the rest of the industry is bringing a windfall to rating agencies, since companies are keen to retire high cost debts, opting for low cost options in the wake of prevailing low interest rates.

the volume of new issues in the corporate debt market rose to rs 21,000 crore in the first three months of the current financial year, up from rs 14,000 in the corresponding period of the last financial year.

rating being necessary for getting loans at a lower rate of interest, the surge in volume of new issues is the main driver of business for these agencies. the corporates have started getting themselves rated for private placements as well.

13 july 2001

vrs pulls down bank bottomlines
mumbai: the voluntary retirement scheme of banks has brought down the bottomlines of public sector banks down by 16 per cent. thanks to heavy provisioning, the combined net profits of banks has come down to rs 4,315.70 crore in 2000-01, from rs 5,116 crores the previous year.
a favourable interest rate regime, however, helped somewhat to assuage the balance sheets, as also one-time settlement schemes for recovery of bad debts. twelve public sector banks posted a rise in net profit, while 14 posted lower profits. top of the profit making banks was punjab national bank at rs 464 crore, while sbi, pnb, canara bank, bob and corporation bank figured among the top five, accounting for 70 per cent of the net profit of all the public sector banks put together.

lose to 1,26,000 employees had opted for vrs, with a total benefit given to them being in the region of rs 15,000 crore.

consortium in aid of us-64n rescue
new delhi: the finance ministry is said to be trying to bring in financial support for uti to help it tide over the us-64 imbroglio with help from the likes of the lic, idbi, and public sector banks, with the likelihood of the lic coming in with a 10- to 15 year soft loan package.

efforts are on to bring about an exit option for small investors with a repurchase price not below the face value, that is, rs 10 per unit, with a limit for the number of units -- between 1000 to 2000 units -- that can be redeemed.

according to the companies act, a small investor is defined as one holding securities of value not exceeding rs 20,000.

meanwhile, the government has gone ahead with its probe on insider trading in the scheme, with letters to banks and large corporates to obtain details of redemptions from may this year.

12 july 2001

rbi proposes changes that will broaden its hold over financial sector
mumbai-the reserve bank of india (rbi) has proposed a slew of changes that will broaden its hold over the country’s financial sector.
on the cards are changes in the laws to make reserve requirements mandatory for financial institutions, prohibiting connected lending by banks and superseding the boards of banking companies when required.
one of the most far-reaching of changes sought to be made is a proposal to ensure that no civil court will have jurisdiction in respect of anything done or intended to be done by or under the banking regulation act, 1949, and no injunction can be granted by any civil court or authority in respect of any action taken by the rbi.
this is aimed at providing protection to the rbi from legal proceedings for any action taken in good faith.
these changes were proposed as part of the rbi’s submissions before the joint parliamentary committee (jpc) probing the stocks scam of 2001, in mumbai on wednesday.
on regulation of financial institutions, a new chapter has been proposed to be inserted after part iic and iid of the banking regulation act that will be made applicable to fis like industrial development bank of india (idbi), national housing bank (nhb), national bank for agricultural and rural development (nabard), exim bank, icici, ifci, and industrial investment bank of india (iibi).
this would make maintainance of cash reserve ratios (crr), statuatory liquidity ratios (slr) and approval of rbi on appointment of statuatory auditors mandatory, besides strengthening powers of rbi to inspect fis and remove directors and appoint additional directors on the board of such fis.
on connected lending, the rbi has proposed an amendment in the banking regulation act, 1949 to debar banking companies from connected lending to prevent siphoning off of funds by the directors through their front companies.
a provision has also been proposed to the act so as to empower the rbi to supersede the board of a banking company if the board is found to be acting contrary to the norms or taking imprudent decisions. further, to avoid any conflict of interest, it has been proposed to debar directors of co-operative banks from becoming directors of banking companies in line with section 16(1) of the act which prohibits a director of a banking company to be a director of any other banking company.

10 july 2001

government to look into insider trading in us-64
new delhi—yashwant sinha, union finance minister, while ruling out budgetary support for the us-64 scheme said the government will investigate if unit trust of india (uti) had functioned along commercial lines in the last several years and also if the huge redemptions us-64 during april-may this year smacked of insider trading. he did not rule out the possibility of the investigation being handed over to the central bureau of investigation.
the independent inquiry pertained to corporates and individuals having prior information that uti is set to impose a freeze on sales and redemptions in us-64 for a period of six months till the end of december 2001.
while not laying out the details sinha indicated that infrastructure leasing & financial services, a public sector leasing and finance company -- then headed by former uti chairman p s subramanyam -- may have had prior information about the forthcoming uti decision.
he also he had some bit of information that he would not like to share with anyone.
the probe, he said, would also look at how much information was shared with the board of trustees and whether it was privy to all the decisions taken by the uti management.
the finance minister announced that the government may appoint its own nominee at the uti board in order to avoid such problems in future. till 1997, there used to be one government nominee in the uti board, but the practice was discontinued later.

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