Bring back trust

RECENT DEVELOPMENTS CONCERNING the country's largest mutual fund, the UTI, can be viewed in two ways. There is, to begin with, a sense of deja vu. The constitution of a probe panel and the initiation of criminal proceedings were entirely to be expected given the Government's past record. Almost by reflex action, probes are instituted and even criminal action launched. As a rule, fixing of accountability takes precedence over correcting the mistakes. No one denies that accountability issues - the guilty should be punished - are important. But by keeping those issues alone at the centre stage, the more urgent task of setting right the past damage takes a back seat. The second, admittedly less popular view therefore, is to see whether the UTI's problems could have been handled differently.

Recent financial history should have a say in determining which of the two courses should have been adopted first. Throughout the 1990s the pattern - of first trying to apportion blame without fixing the system - was widely followed. It has been costly not only for the affected individuals but for the concerned, usually government-owned institutions, too. Note for instance the fallout of the 1992 stock market crisis. Given, among other stumbling blocks, the judicial delays, there has been no denouement yet on any of the substantial matters. Except for a relatively less significant interpretation of the Negotiable Instruments Act by the Supreme Court - in the case involving the broker Hiten Dalal - no legal precedents have been set so far. On the other hand there are vexed matters such as the one relating to the ANZ Grindlays Bank and the NHB which are waiting for the highest court's ruling even after going through an expensive and time- consuming arbitration process. At a broader level, that the share market should be visited with another crisis so soon ought to give little comfort to those who believe in the utility, even infallibility, of post mortems conducted by numerous expert groups, including by a Joint Parliamentary Committee.

What are the messages for the Government and the UTI? First and foremost, there should have been a transparent plan to restore confidence among UTI's investors. Since July 2, when it made a controversial announcement to suspend temporarily the repurchase and sale of units in its flagship US 64 scheme, the Trust has been at the receiving end of extraordinarily bad publicity. Unfortunately the rationale of the Trust's decision to restructure the US 64 - the package of measures announced have several positive features - could not be articulated then and, given the predictable turn of events, in the foreseeable future too. Not surprisingly, many among the large number of investors who have placed their savings in the US 64 scheme are terribly worried. The swift replacement of the Trust's Chairman was perhaps inevitable but once that has been done officialdom must have gone all out to help the incumbent and his team in their uphill task to win back investors. The Trust has already structured a buy-back scheme for the smaller unit holders, which is the best under the circumstances, but one that is predicated on most of them staying put and not causing a run.

Obviously many more crucial and difficult steps will have to be taken before the UTI can regain its lost glory. Needless to add, at each stage the UTI needs to carry a majority of its investors as well as the Government with it. It is extremely doubtful whether the high profile investigations, the arrests and the blaze of publicity surrounding them will help the cause of UTI and by extension its investors. The unfolding UTI case is another demonstration of the Government devaluing its own assets - in this case by not properly sequencing its responses.

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Section  : Opinion
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