UTI payoff: Govt may pass on the Rs 19,000-crore bill to taxpayers

Last year, the Cabinet Committee on Economic Reforms had decided that each holder of US-64 could redeem upto 5,000 units at any time between August 2001 and May 2003 and would be paid the face value of Rs 10 per unit from the first month. For each month thereafter, the repurchase price would increase by 10 paise to end at Rs 12.00 in May 2003.

Any unitholder who chose not to exercise his option would be paid Rs 10 per unit or the net asset value (NAV), whichever is is higher. The burden to the government, on this account, is estimated at Rs 5,522 crores.

On the assured return schemes—21 in all—with promised dividend of 13 to 14 per cent while the actual earning is 7.5 percent to 8.4 percent, the total current shortfall is estimated at Rs 8,561 crores. ‘‘However, since some of the schemes are of the long maturity, the shortfall on maturity is much higher and the present value of the shortfall in all the 21 schemes is Rs 13,739 crores’’, says a government document.

While assuring the above, the government admits that the unitholders were paid much more as dividend without an equal earning. ‘‘During 1991-1998, UTI declared relatively high dividends without actual commensurate earning. The dividends declared starting from 1991-92 were 25 percent, 26 percent, 26 percent, 26 percent, 20 percent, 20 percent in 1997-98 without setting aside any portion as risk capital since US-64 had become so heavily weighted towards equity. Also, the sale and repurchase prices were fixed at artificially high prices without any correlation to the intrinsic strength of the scheme’’, says the government document.

For taking on this burden, the proposal asks UTI to be fully compliant with regulations of the Securities and Exchange Board of India, distance itself from the Central government and form a sponsor company, a trustee company and an asset management company to take over all the assets of UTI including its schemes.