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S. Vaidya Nathan

ALL the UTI talk now of creating management structures to ensure accountability is welcome. But unfortunately, it comes long after the horses have bolted. The widespread perception is that the declared NAV of US-64 is worse than even the most pessimistic might have imagined.

This is now set to cost existing unitholders of US-64 dear. Most are looking at capital losses ranging from Rs 1.70 to Rs 3.70 per unit, at the least, depending on when they invested in the 1990s. This is even after the bailout package put together by the UTI. And if their losses are restricted to this level, it has nothing to do with the UTI's performance.

Yes, its failure without a bailout may be disturbing for share prices of companies but that may be a short-term phenomenon. That has never come into prism of decision-making as the government wants to stand by the UTI. The persons who will actually foot the bill are the tax-payers, who may have to fork out at least Rs 5,120 crore at current price levels.

If stock prices improve, the figure may come down. But this is an open-end commitment, which means the bailout cost could get bigger even if the NAV slips by a rupee of two. For every one-rupee drop in the NAV, the bill would be higher by at least Rs 1,300 crore.

Tax-payers have no way of avoiding this now. But the very least that needs to be done in return for the price they are set to is to fix accountability for what has happened, even if it means going back in time. It may not be possible to pin down responsibility completely for the poor quality of fund management.

But what is needed and possible is an objective account of the fund mobilisation policies pursued, the kind of promotional campaigns used, the major buying and selling decisions, the loss positions in the current portfolio, investments in instruments of a strange nature and irrational terms, such as the Reliance convertible warrants (where UTI converted warrants to equity at prices that were much higher than market prices), the details of the big malaise of inter-scheme transfers which benefited US-64 in a big way as late as in 2001, and a clear profile of the quality of debt portfolio, among others.

Investors and taxpayers need to be told in detail of how things went awry, and the government must take measures towards this end.

The government must also ask UTI to come out clearly and say which SEBI norms are not complied with by US-64 now. The UTI top management has been indicating that when US-64 switches to NAV mode, it would be SEBI-compliant. But now it is saying that US-64 would be SEBI-compliant by December 2002.

Investors, tax-payers and the government need to clearly know where the lack of compliance lies. Of particular concern to investors is the issue of whether there is lack of compliance with regard to computation of valuation norms. The UTI has little to lose by saying that there is no problem here.

Till it does that, concerns over the NAV declared may persist as there could be negative surprises. If investors are to feel fully comfortable that the declared NAV is completely reliable, the UTI needs to be more transparent on where it stands vis-à-vis compliance with SEBI norms.

It should also ask the UTI to detail how it has handled the repayment of MIPs that have been redeemed in the last two years. These can be good starting points for imposing a modicum of accountability in an institution that now has assets of around Rs 50,000 crore under management.

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