Armed with a government guarantee of upto Rs 1,000 crore to tide over its assured returns schemes crisis, Unit Trust of India (UTI) has tapped the State Bank of India (SBI) for a loan of that amount at 2.5 per cent below the bank’s prime lending rate (PLR). SBI has said it would be willing to provide the funds to UTI.UTI will also sign a memorandum of understanding (MoU) with the government as part of the conditions of the guarantee. The MoU is expected to spell out a clear action plan for UTI in making it fully Sebi-compliant. The Government guarantee formally came through to UTI on Wednesday evening.The Rs 1,000 crore line of credit being sought by UTI will help it tide over the problem in meeting the shortfalls in its assured returns schemes till August this year. Two assured returns schemes are maturing on June 30, and one in August. The Development Reserve Fund (DRF) of UTI, which is the guarantor of the schemes, has run short of funds, triggering off the crisis.The loan sought is for a period of five years, and with SBI’s PLR at 11 per cent, the rate for UTI works out to 8.5 per cent. SBI sources said on Thursday after the bank’s board meeting to declare its results, that even at 2.5 per cent below PLR, it made “very good commercial sense” for the bank, since the loan would be backed by a government guarantee. Banking industry sources said it was a good lending opportunity without any transaction cost.“SBI is willing to provide such a line of credit, since it will make good commercial sense as there’s a government guarantee involved. We will be ready to provide the liquidity,” top SBI sources said.The bank had already sanctioned a Rs 1,000 crore line of credit against government securities, and another Rs 500 crore line against listed stocks. The government guarantee and SBI’s willingness to lend could not have come at a better time for UTI, whose board is meeting for an important sitting on Friday. The UTI board is expected to clear the setting up of an internal asset reconstruction fund (ARF) to which non-performing assets from four of its schemes would be transferred. The Trust is also creating a special dispensation for investors of another scheme — MIP-95 — which is also maturing on June 30, whereby the books of the scheme will be kept open for two more years even after the scheme matures to enable investors to reap the benefits of recoveries of NPAs as and when they happen.The board meeting is also expected to finally clear the new pay structure with a variable component linked to performance, and greater delegation of powers to fund managers.
