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Will Govt bite the bullet on UTI reforms?

Shaji Vikraman

EXACTLY a year ago, the Finance Minister and his team of officials in North Block were busy fire-fighting after a scam involving share price manipulation surfaced.

Shortly after, a Joint Parliamentary Committee was set up to probe the scam. Within a month or two of it being constituted, the terms of reference were widened to include the mess in the Unit Trust of India. So far there has been no clue as to when the committee intends to complete its assignment, especially when considering that there are few scalps to be got, unlike in 1992.

The uncharitable say that it could be well after the monsoon session. The interest in the committee proceedings can be gauged at its briefing where just a couple of hacks turn up, struggling to keep awake during the dreary proceedings.

This might suit the Government fine. For now, the Finance Ministry wants to wait for the committee's recommendations so that ``valuable inputs '' could be gained prior to the restructuring of UTI. The proposed revamp of the UTI based on time-bound reforms will, therefore, hinge on the ``pilgrim's progress '' the panel makes; although an approach paper on UTI has been floated in the North Block.

Both the UTI board and the Finance Ministry are not in favour of the concept of roping in a strategic partner for UTI as recommended by the Malegam Committee. The issue of a strategic partner is not germane to the revamp, according to the Ministry.

UTI will have to be SEBI-complaint like any other mutual fund, they concede. A promise has already been made to separate the trustee function from the asset management function by December 31, 2002.

However, the necessary legislative changes, which are called for either in terms of repealing the UTI Act, 1963 or carrying out amendments to the Act, may not be easy to enact.

The proposal now being floated centres around the residuary part of the Act. In other words, it would mean that until a transition is made, the Act would be in vogue for a while to fulfil certain objectives.

If this is done, one of the key issues will be the willingness of the Government to surrender its power to appoint the Chairman of the UTI vested with it under the UTI Act. Holding on to the power to appoint the chief of the biggest fund management firm in the country provides any Government with tremendous leverage to patronise industry houses and businessmen.

The last Chairman of the UTI, who left in disgrace, had testified to several directed phone calls from the bosses in New Delhi pushing the cases of corporates.

Besides the residuary part, a couple of contributors to the initial capital of the UTI led by IDBI have served notice that they should not be called upon to cough up funds, when the UTI faces a shortfall in any of its assured return schemes.

As it is, IDBI is close to a similar state as that of IFCI with regard to passing the hat around for capital.

The Government may in this case back IDBI as it reckons that IDBI and a few other banks and investment institutions were not sponsors of the mutual fund.

A distinction is now being sought to be made between this case involving UTI's initial capital contributors and that of Canara Bank and its mutual fund.

Due to its role as a sponsor, Canara Bank was forced a few years ago to honour the commitment made by its mutual fund arm.

Given the Government's stance on this, the turn to pass the hat around this time may be the UTI's. As a babu remarked, it should not be problem. Just float another bailout scheme christened SUS II.

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