India's leading public sector banks have decided to invest in US-64 commercially based on its expected returns and will not simply bail out the Unit Trust of India.
Banks have told the finance ministry that they are not averse to increasing their exposure to the Unit Trust of India's (UTI) US-64 scheme. But, they said the investment decision would be primarily commercial based on the scheme's expected returns.
The investment in US 64 will be based on the presentations made by UTI to the commercial banks.
Officials at the State Bank of India (SBI), Bank of Baroda (BOB), and Bank of India (BOI), told the finance secretary, Vijay Kelkar, that the decision should be left to individual bank's treasury and investment departments, top bankers said.
Apart from the support from banks its was suggested by bankers that the UTI should approach investors and make presentations addressing investor grievances.
They said they wanted details of UTI's investment strategies so as to ascertain the scheme's expected liquidity and returns.
Banks told the finance secretary that investor confidence in the scheme had to be restored as the UTI was at the core of the financial sector, and a crisis with the UTI would spread to the rest of the financial sector.
Bankers said they were unpurturbed by the recent stream of redemptions in the scheme by wholesale and retail investors.
The redemptions followed a statement from the UTI chairman, P S Subramanyam, that its flagship scheme's net asset value (NAV) had deteriorated. UTI then raised the purchase price of its units to Rs 14.25 from Rs 14.10, which prompted redemptions estimated at over Rs 550 crore last week.
Bankers said they were discouraging high networth individuals from selling off US-64 units and converting them into fixed deposits as the present deterioration in the US-64 NAV was expected to be a near to medium term phenomenon, reflective of the economic slowdown.
Bankers said Kelkar agreed to the view that banks could not be forced to invest in the UTI scheme or any other investment scheme. They also ruled out a market recapitalisation scheme utilising excess funds with banks and other institutions.
But they said the expected a revival in US-64's net asset value once an economic revival took place.
