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Shaji Vikraman

IN 1996-97, when mutual funds were doing fairly well, the then UTI Chairman wrote to the capital market regulator on what it perceived as a case for creating a level playing field. The issue was simple. While every other mutual fund was in the market floating assured return schemes for fairly long tenures, the granddaddy, UTI, was left on the sidelines watching the Johnny-come-lately funds mop up a lot of money from investors.

The argument of the UTI Chairman then was that the granddaddy also ought to be in the fray in the interest of ensuring a level playing field. Other mutual funds at that time offered assured income schemes ranging from 2-5 years or more, the UTI boss told the then SEBI Chairman, Mr D.R. Mehta.

If the new mutual funds could mop up money through assured return schemes, the UTI could easily be one up on them, the trust reckoned. The Chairman's letter to SEBI referred to how the UTI would be investing the money raised through such assured return schemes in AAA securities.

It is against this context that the regulator approved the first of the monthly income plans (MIP) in 1997, which was followed by similar such schemes. The party would have lasted longer if not for the first crisis, which UTI faced in 1998 immediately after Mr P.S. Subramanyam took over.

After a bailout package of Rs 3,300 crore by the Government then in 1998, the UTI was told by the Finance Ministry to put an end to such flotations. The trust then confined itself to floating schemes with an underlying guarantee of assuring returns for only one year.

After the second bailout last year, the UTI was forced this year to dip into this development reserve fund (DRF) to redeem the first MIP-97 (1). Five years after the scheme was launched with an indication to the regulator that the funds would be placed in AAA securities, the portfolio now reveals plenty of junk bonds.

Little wonder that the trust had to look at the option of raising money by using even its real estate holdings as collateral to meet its redemption commitments.

The other MIPs due for redemption, given their portfolio of virtual junk bonds, will also leave the trust with a large hole, which the Government is refusing to fill.

Probably, UTI had banked up on the Government coming to its aid in the run up to the MIP-97 (1) redemption, only to find cold response. The Government may well have a defence if at all in the UTI Act, where there is no mention of the Government's obligation to underwrite the investors.

The initial contributors to the Rs 5-crore capital of the UTI have already written letters to the UTI and the Government, attempting to wash their hands off the fund and not be dubbed as sponsors.

It is incredible to think that even after two major crises UTI passed through, none of these contributors expressed their desire to exit then, although they must have seen the writing on the wall. There is no record so far of any of them objecting to the dubious investments made by the UTI management over the last several years.

The Government officials and some members of the joint parliamentary committee (JPC) on the 2001 security scam, who have gone through the records of the last several years, are at a loss on the action to be taken. For, the records clearly show the culpability of quite a few past Chairmen of the UTI. Topping it of course was the phone calls from New Delhi and at one point of time Chennai directing investments in dubious corporate outfits.

Already, the exercise of passing the buck is on. Last week, the UTI board desired to refer to the Finance Ministry the case of private placement of shares of Reliance Industries Ltd with UTI in 1995. The Tarapore committee appointed by the Government had clearly recommended this as a fit case for being referred to a pre-investigative body. Few, including on the UTI board, seem to be remember, that the CBI had, over four years back, sought the approval of the Government to proceed in this case. Now, the entire exercise has started from scratch. A case of buying time?

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