Tags:
Journalism of Courage
By May 31 next year, the hole in its coffers will swell to a whopping Rs 7,500 crore, when even the Unit 64 comes up for redemption, along with a host of assured return schemes called the Monthly Income Plans, or MIPs. But a cool and collected UTI chief M. Damodaran is clear that investors have no reason to panic. Your returns, the capital as well as the interest, he assures is absolutely guaranteed in all the cases where UTI had promised assured returns. Forget about whether IDBI is a sponsor of UTI or not, or whether it has the money to contribute, he says. In the ultimate analysis it is the government which is responsible. And it will have to, and will (he insists) make good the money. In exactly the same manner as it did on the US-64 last year.
What is the final solution?
It’s time to get out of the complicated legal aspects of who and what is the sponsor. At the end of the day, the government is responsible for UTI. The UTI Act Section 3 says clearly it was ‘established’ by the government, and 2X of the Sebi Mutual Fund Regulations says the person who ‘establishes’ a fund is the sponsor.
The fact is also that as far as the assured-return schemes are concerned, the trust has stated it will pay. Can the reserve fund, the DRF, meet the shortfalls? No it can’t. By December, there are five retail investor MIPs due and the shortfall on this alone is around Rs 2,000 crore, and there’s also an institutional investors scheme which is due—the DRF is just worth Rs 900 crore or so, and much of this is not immediately liquid. So, the government just has to find some way to give the money. I don’t think anyone needs to panic. In various MIP schemes, returns and the capital have been assured (it’s different for different ones). This money will be given to the investors.
How big is the total hole in UTI?
The figures vary and all manner of assumptions have to be made—will the markets improve, will people reinvest in UTI … If nothing changes, based on today’s prices, and assuming everyone wants out on May 31 (the date when the government has promised to redeem all outstanding US-64 units) the hole will be Rs 7,500 crore. Of this, US-64 will be a little over Rs 5,000 crore.
The government needs to give the money to UTI. But will it, and when?
I can’t give you details, but it will give the money. By June 30, when the next lot of MIPs mature, the money will be given—the money, or some solution to take care of things. We’ve suggested some options, but I can’t share the details.
How have you really improved things at UTI?
Most important, fund managers are now genuinely in charge. In the earlier scheme of things, investment decisions were taken by the UTI chairman and the executive director, the late M.M. Kapoor—that’s all. This is now changed. Second, we used to have 1,101 scrips and this is now down to 800, and will be pared down to 200-300 which is manageable. Our gross NPAs, it is true, have gone up, but the net ones have come down. Eight of UTI’s 26 equity schemes are rated among the top quartile in the industry in the last quarter. Our bond fund did the best. I think the issue was about giving people operational freedom, and that’s happened.
When you came, you talked of getting huge amounts from strategic sales of UTI’s equity holdings, but nothing really happened.
These things take time. But you’ll see the results soon. We hope to get a few hundred crore rupees. We’ve filed cases against lots of defaulters, and have got six or seven orders from the Debt Recovery Tribunals already. This also takes time, but the process is initiated. Once people know we mean business, they begin negotiating settlements—right now, two parties are waiting downstairs to settle old debts. Soon, I hope to get DRT orders against some of the biggest defaulters in Indian industry.
Who is responsible for the MIP mess? How did UTI guarantee returns when other assured schemes had come a cropper, and when Sebi didn’t allow any other mutual fund from 1995 to offer guaranteed returns?
Most of the ‘experts’ talking about UTI today have been on our board of trustees at some point, and cleared various assured-return schemes. Rakesh Mohan (advisor to the FM till recently), G. Muniappan (RBI deputy governor), S.H. Khan (former IDBI chief), S.S. Tarapore (former RBI dy governor), Arvind Virmani (of the Finance Ministry), M.S. Verma (former SBI chief and currently TRAI chairman), G.N. Bajpai (now Sebi chief) … they’ve all been trustees. Sebi also cleared the schemes, on the strength of the size of the DRF! No one even raised any alarm when the corporates were redeeming units in such large amounts last May. So, there was a collective failure of sorts.
How much of UTI’s time is taken up by various committees… JPC, Tarapore, Audit Committee, Malegam…?
Based on our normal working day of 9 hours (we’ve increased our timings by an hour), I’d say around a fourth of top management time’s been taken up by various reports. I spend around 45-60 minutes a day for JPC replies ever since its scope got enhanced. We’ve given them 36 reports already and I think another 4 are in the pipeline. We had to service the Malegam committee around the clock.
