Equity Research Cell Had Warned On Many Investment Proposals

The committee was entrusted with the task of reviewing investment decisions of the Unit Trust of India over the past decade and to assess these decisions against the criteria of transparency and appropriateness, as also to examine whether these investment decisions were based on commercial or extraneous considerations.

Given the fact that the committee was not a suitably empowered authority, the committee had to necessarily restrict its examination to the documents and information provided by the UTI. As such, the committee could not definitively conclude whether any of the decision were driven by extraneous considerations. Having regard to these limitations, the committee evolved its methodology and approach.

* The committee was aware that given its extremely tight schedule of three months in which to complete its task, it would clearly not be possible to undertake a detailed examination of all individual investment decisions. Hence, the committee evolved a three-level methodology.

First, an aggregate statistical analysis was undertaken of the investment decisions to examine whether it revealed any broad patterns. The analysis for the period 1998-2001 is more exhaustive, while for the period 1991-98, it is scanty and incomplete because of data retrieval infirmities. Secondly, the committee undertook a closer examination of investments in 88 companies, which have been in the public glare and of concern to investors.

Thirdly, the committee undertook a review of the investments in 19 individual companies, and specific follow up of recommendations are made in each case.

Patterns in investment during 1998-2000

* The committee undertook a statistical analysis of the investment/disinvestment decisions taken during the period July 1998 to June 2001. The analysis is based on aggregative data provided by the UTI and the attempt is to establish certain patterns in investment/disinvestment decisions relating to equity and debt instruments by way of initial public offers (IPOs), private placements and off-market deals. The endeavour here is to provide a panoramic view of individual decisions, more by way of illustration of certain patterns, rather than an examination of individual investment decisions.

* Investments in debt and equities via private placements and off-market deals and IPOs in the case of equities, were sizeable and amounted to a total of Rs 17,925 crore during the three year period ended June 2001. Though investments by way of private placements and off-market deals carry higher degrees of risk, the committee observed that, in the scheme of delegation of powers in the UTI, there was no risk-based delegation of financial powers.

Investment in debt instruments

* A perusal of the sanction and disbursement processes does indicate that the sanctity of the sanctioning powers and the laid down process have, on many occasions not been followed. While commercial requirements do sometimes require a departure from the laid down processes to enable expeditious decision, the patterns observed in the sanction process do cause some concerns.

There are a number of cases wherein the chairman