Mumbai:
The Unit
Trust of India (UTI) simply refuses to fade away from news.
The latest: the central government has again stepped in
to avert yet another crisis in UTI, the countrys largest
mutual fund which is still mired with crises.
 Last
week the government extended a guarantee of Rs 1,000 crore
to the troubled giant to meet its commitments to investors
of its schemes maturing at the end of this month. Armed
with the government guarantee, UTI can now raise funds from
banks and financial institutions to make good the Rs 900-crore
shortfall in these assured return schemes.
These include: the Monthly Income Plan (MIP) 1997 (II),
IISFUS 97 and MIP 95. Of these, the largest shortfall
is in MIP 1997(II) because it was launched with the promise
of a full-term assured return and protection of capital
on maturity.
The government decided to help UTI after UTI sponsors like
IDBI, State Bank of India, and Life Insurance Corporation
refused to bail out the beleaguered mutual fund. The guarantee,
which was approved by Finance Minister Yashwant Sinha, will
support UTI to ensure that its attempts to securitise its
assets in its development reserve fund realise a much better
value and also reduce the cost of its borrowings.
UTIs new woes revolve around its 16 assured MIPs and a
fixed-return scheme. Two MIPs and the fixed-return scheme
mature on 30 June 2002 and three more MIPs mature later
this year. The 16 MIPs offer assured monthly or yearly income
for one to seven years, and a few also guarantee repayment
of the initial capital at par or the market value, whichever
is higher.
Crises galore
Crisis in UTI has become a soap opera with no end in sight.
It first hit UTI in 1999, and each time since then the government
had to roll back a bailout package. In 1999, the government
bailed UTI with a Rs 3,300-crore package when US-64, its
flagship scheme, ran into trouble.
In 2001 UTI shocked the country again by suspending
it redemptions from US-64. Again the government bankrolled
to redeem up to 5,000 units of investors at a price above
the market value.
The crisis now is that some of the assured return schemes
launched by UTI are reaching maturity this year. The holes
in the kitty are too big. It is estimated that the total
shortfall for UTIs 16 MIPs is more than Rs 3,500 crore.
Worse, the Development Reserve Fund, set to fund any shortfalls
in these assured return schemes, has only 1,800 crore in
its kitty, out of which close to Rs 617 crore was used to
redeem MIP-97 which matured on 30 April 2001.
UTI is also witnessing its market share tumbling down. The
total assets under management (AUM) plunged to 47.64 per
cent in May from 49.57 per cent in April 2002 as redemptions
increased. UTIs fresh mobilisation was Rs 207 crore in
May as against a gross redemption of Rs 1,948 crore. The
mop-up by the existing schemes remained stagnant in May
in comparison to the figure of Rs 200 crore during April.
The gross redemptions during May spurted to Rs 1,948 crore
compared with Rs 756 crore in April. The outflow was huge
considering that the month did not witness any scheme mature
for redemption. UTIs total AUM fell from Rs 50,983 crore
in April to Rs 48,706 crore in May. In March 2002 this figure
was Rs 51,434 crore and the market share was 51.13 per cent.
Rescue attempts
UTI has, in the meantime, taken a slew of measures
to improve its debt recovery mechanism. It is setting up
an asset reconstruction fund (ARF) to which non-performing
assets (NPAs) from four of its schemes will be transferred.
According to the worked-out plan, ARF will buy out NPAs
from four open-ended schemes at a hugely written-down value.
UTI has set up a special team comprising people from accounting,
legal and fund management disciplines to solely work for
ARF. ARF will be capitalised with a sum of about Rs 20 crore
from DRF.
The total value of UTIs NPAs stand at Rs 6,670 crore, 90
per cent of which is provided for. In case of MIP-95, the
non-assured return scheme has gross NPAs of Rs 184 crore,
while the gap between the net asset value and the face value
is Rs 161 crore. It also has interest provisions of Rs 58
crore.
ARF
will focus on recoveries, taking NPAs from these, and in
the process the schemes will be benefited by clean
balance sheets without any NPA burden. It has also decided
to keep the book of MIP-95 open for two more years even
after its maturity on 30 June. Investors will get the benefit
of the NPAs recovered by ARF during this period. These initiatives
were approved by the UTI board of trustees meeting on 21
June.
One aspect is clear.
Without a helping hand, either from the government or
financial institutions, it will be difficult for UTI to
meet its commitments. But the sad part of the whole story
is that it is causing a huge burden on the government
(read: taxpayers money) to fund a troubled institution.
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