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UTI bail-out: Banks seek Govt guarantee

Our Bureau

MUMBAI, July 16

SOME commercial banks, willing to extend lines of credit to Unit Trust of India, have sought more comforts in the form of Government guarantee.

These banks indicated their views to the Finance Ministry last week, a senior bank official said. The Government guarantee will help them in easy provisioning against credit and obtaining their boards' approval for it, he said.

Banks fear lending large sums against collaterals of securities may lead to violation of exposure norms. ``We are prepared to give clean loans to UTI but against Government guarantee,'' said another bank official.

UTI has approached banks and institutions for funds to meet the redemption requirements of US-64 units. Some banks have already agreed to extend lines of credit against collaterals of securities.

Leading public sector bank chiefs had a meeting with the Finance Minister, Mr Yashwant Sinha, last week to discuss various options in providing assistance to UTI. Banks in general had agreed to provide assistance and one suggestion was to extend loans at below prime lending rates (PLR).

According to sources, UTI has also suggested that the banks buy some of the underlying assets of US-64 scheme. The idea is to avoid offloading these assets in the market which is struggling to come out of the bear trap.

However, analysts say UTI is unlikely to face any large-scale redemption pressure immediately. Under the new package, it has offered an assured return of 10 per cent per annum in addition to dividend to small investors.

Some public sector banks had reportedly offered to buy select public sector bonds under the US-64 portfolio. Since UTI had picked up these securities directly from the issuers, it could earn good profit by selling at the current market price.

UTI officials had earlier indicated possible sale of some of its strategic corporate holdings. The new Chairman, Mr M. Damodaran, is expected to work out a strategy for meeting the redemption requirements.