The Hindu : Privatise UTI in one year: JPC

Online edition of India's National Newspaper
Wednesday, Jul 24, 2002

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Privatise UTI in one year: JPC

By Our Special Correspondent

NEW DELHI JULY 23 . The Joint Parliamentary Committee (JPC) on the stock market scam and related matters has recommended in its draft report that the public sector Unit Trust of India (UTI) be privatised within one year.

The recommendation comes in the background of the series of adverse reports on the UTI's functioning and the ``lack of political will'' which resulted in the trust not being restructured since 1993.

Another major recommendation of the committee is for an explicit regulation, banning the launch and operation of assured returns schemes such as monthly income plans by mutual funds and the withdrawal of the Securities and Exchange Board of India (SEBI) regulation allowing mutual funds to start such schemes.

Outlining the blueprint for privatisation of the UTI, the JPC suggested that the trust first be restructured as a mutual fund under the SEBI guidelines.

This would also prohibit it from carrying on any business not allowed for mutual funds, and the UTI would have to divest its shareholding in subsidiaries which conducted business which were not allowed for mutual funds.

The restructured mutual fund should then be privatised by strategic sale of 60 per cent of the share in the sponsoring company to a private investor as suggested by the Malegam Committee.

The remaining 40 per cent shareholding could be held by the present contributory institutions or the Government (if it decided to bail out the assured return schemes directly) with the proviso that none would hold more than 25 per cent of the equity of the sponsoring company.

The trustee company should be a wholly-owned subsidiary of the sponsoring company, and the shareholding of the sponsoring company in any asset management company (AMC) should not be more than 40 per cent with the balance offered to the public. The JPC was categorical that privatisation and choosing a strategic partner should be handled by the Department of Disinvestment, which should undertake the exercise through competitive bidding as per its existing norms.

The report made clear that since the UTI still controlled almost 60 per cent of the assets under management of the mutual fund industry as well as substantial equity in many companies, there was need for control over such large funds not being with a single individual or group.

To address this problem, it was suggested that the UTI be bifurcated into separate AMCs for US-64, assured return schemes and others, or for US-64, income schemes and growth schemes.

UTI Bank chief proceeds on leave

PTI reports from Mumbai:

The UTI Bank chairman and managing director, P.J. Nayak, has proceeded on four weeks leave in the wake of a draft report of the Joint Parliamentary Committee charging that he "stood to gain" from the "failed merger" with the Global Trust Bank.

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