Panel suggests UTI be capitalised

Mumbai: The YH Malegam Committee, which had earlier endorsed Sebi's views of breaking the Unit Trust of India (UTI) into three segments - namely a sponsor company, an asset management company and a trustee company - has recommended that UTI, as an asset management company, be capitalised at Rs 1,000 crore.

This large capitalisation has been sought keeping in mind the large size of investible funds with the UTI, estimated at about Rs 50,000 crore. The Committee was set up to suggest ways and means of restructuring UTI and had to speed up its report after the joint parliamentary committee (JPC) turned on the heat.

It has said that one single asset management company should manage all the funds of UTI and that 60 per cent of its capital should be offered to the public to ensure accountability. The sponsoring company should be given the balance 40 per cent stake. It has also said the trustee company be capitalised at Rs 5 crore and be placed as a wholly-owned subsidiary of the sponsor company.

To strengthen the sponsoring company, the committee has suggested that a strategic partner in the sponsor company be given a majority stake of 60 per cent. The partner need not be an Indian entity either. Instead, stress should be on roping in a globally reputed player, even if it is a foreign company. The committee's other recommendations are:
1) No single sponsoring institution should be allowed to hold more than 25 per cent of the share capital of the sponsoring company.
2) The sponsoring company be capitalised at Rs 550 crore. Out of this, sponsoring institutions should be made to subscribe Rs 220 crore and the strategic partner, Rs 330 crore.
3) Promoters of the sponsoring company should be prohibited from transferring shares for a period of three years, either to a strategic partner or to any third party.
4) The original sponsoring institutions, namely the IDBI, SBI, LIC, SBI's subsidiaries and some scheduled banks should be allowed to convert their existing holdings in the UTI into their share capital in the sponsoring company.