Damodaran: Long innings

New Delhi, Feb. 1: The government will re-start the process of finding new promoters for UTI Mutual Fund after three banks that had been earlier shortlisted backed out.

A senior finance ministry official said despite the delay, they hope to find new promoters to replace the existing ones in the fund, earlier known as Unit Trust of India II.

Earlier, Oriental Bank of Commerce (OBC), Bank of India (BoI) and Corporation Bank were expected to replace the four promoters of the Asset Management Company (AMC), which operates the fund.

The official, who asked not to be named, said the commercial banks have expressed their desire to concentrate on the booming and safer retail banking business instead of venturing into the riskier asset management business.

The AMC has been promoted by state-run State Bank of India (SBI) along with Life Insurance Corporation (LIC), Bank of Baroda (BoB) and Punjab National Bank (PNB) with a capital infusion of Rs 2.5 crore each after the bifurcation of the cash-strapped Unit Trust of India.

The official also said the government has decided to extend the tenure of M. Damodaran, chairman and managing director of the fund, which was scheduled to end in the first week of February.

“The process will pick up pace once the appointment is formally announced,” he said.

In January last year, the government had transferred management control of Unit Trust of India II (UTI-II), worth around Rs 20,000 crore and composed of the Net Asset Value Schemes of the erstwhile Unit Trust of India, to the Asset Management Company.

However, the Joint Parliamentary Committee, which probed the stock market scam, had voiced concerns on the equity holding of the four financial institutions as there was a potential conflict of interest and consequently the need for them to maintain arms length distance from UTI-II.

The committee said since the sponsors of UTI-II have their own mutual funds, the institutions eligible to operate the fund would have to be those without an existing fund business.

UTI, the country’s largest mutual fund was split into two entities, after the repeal of the UTI Act of 1964 as there was a cash shortfall, which led to the fund being unable to meet redemption pressures in July 2001.