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UTI chief quits, Vassal in charge -- Package for exiting US-64 investors

Our Bureau

NEW DELHI, July 4

THE Government on Wednesday set in motion a series of damage-control measures, following the US-64 fiasco by forcing the exit of the UTI Chairman, Mr P.S. Subramanyam, followed up by a directive to the UTI management to work out a scheme to provide liqui dity to retail investors, during the six-month period when the sales and repurchase window will be closed.

The exercise started in the early hours of Wednesday, after a senior Finance Ministry official called up Mr Subramanyam in Mumbai, expressing the Government's ``lack of confidence'' in his managing the affairs of the Trust. Shortly after midnight Mr Subr amanyam put in his papers. The Government then moved swiftly to install the senior-most Executive Director of the UTI, Mr K.G. Vassal, to head the country's biggest mutual fund in the near term.

Subsequently, the entire top management of the UTI which flew down to Delhi, held discussions with the Finance Minister, Mr Yashwant Sinha, and other senior officials on steps to provide some solace to millions of small investors.

The UTI management will shortly work out a package to provide, primarily, liquidity to investors who want an exit option. This will be implemented after the approval of the Finance Ministry and the UTI's board of trustees. This is expected to be done wit hin a fortnight.

At an impromptu briefing for the media after the meeting with the Finance Minister and the Finance Secretary, Mr Ajit Kumar, the acting Chairman of UTI, Mr Vassal, said that the near-term agenda was solely to protect the interests of the small investors.

``We have been called for the specific purpose of ensuring that the interests of small investors is protected. We will come back to the Ministry after we finalise the alternative proposals,'' Mr Vassal said.

Today's meeting did not focus on the restructuring of the Trust or any bail-out for the investment institution. According to the Joint Secretary, Capital Markets, in the Finance Ministry, Dr J. Bhagwati, the restructuring of UTI would have to wait for th e final report of the Corporate Repositioning Committee, headed by Mr Y.H. Malegham. ``It is too premature to talk about a bail-out now,'' he said, adding that the UTI was a board-driven institution with no Government representation on the board.

UTI officials, however, said that a bail-out package from the Government could be one of the options to be placed later before the Finance Ministry. First, it would have to be proposed by the board of trustees of UTI.

They also said that though the conditions which prevailed in 1999, when the Government had to step in with a bail-out package involving an infusion of Rs 3,300 crore and the situation now might be similar, the solutions may not be the same.

The Senior Executive Director of UTI, Mr B.G. Daga said that the UTI had no option but to freeze the sales and repurchase window, considering the heavy redemptions, especially from corporates in April-May this year coupled with the downturn in the stock markets. The reasoning is that if the Trust had moved to a net asset value (NAV) based pricing earlier, several investors would have been hurt in the process.

The UTI is now hoping to put in place central data processing systems to ensure a real-time flow of sale and repurchase of units across its over 400 offices in the country. The aim is to provide a daily NAV in line with SEBI norms before the end of July 2002.

The Executive Director of UTI, Mr Kapoor, said although the Deepak Parekh Committee had recommended that UTI should reduce its equity exposure, the Trust could not succeed due to the market situation this year. In a falling market, cutting the equity exp osure would only have resulted in further losses. Therefore, the option then was to provide liquidity using the debt option of US-64.

The equity component of US-64 was roughly about 65 per cent in terms of market value as on June 30.

UTI's other senior Executive Directors, Mr Murthy and Mr S.K. Basu were also present at the meeting.

Highlights

* UTI chairman quits

* Temporary charge for senior executive director, Mr Vassal

* UTI management summoned by Govt to discuss rescue measures

* UTI to provide liquidity to small investors shortly

* No decision yet on bail-out and recast

Picture: UTI officials waiting for a meeting with the Finance Minister, Mr Yashwant Sinha at North Block. (Left to right) Mr Murthy, Executive Director, Mr. K.A. Vassal, acting Chairman, Dr. J. Bhagwati, Joint Secretary, Ministry of Finance, and Executiv e Directors Mr. S.K. Basu, Mr. B.G. Daga and Mr. M.M. Kapoor, in the Capital on Wednesday.

Picture by Kamal Narang