Sebi Cautioned Uti On Payouts

The Securities and Exchange Board of India (Sebi) sources said UTI was cautioned that its income was not adequate to declare a high dividend and a bonus for the past three years.

"While Sebi regulates only those schemes launched after 1994, UTI was cautioned on the gap between the income and provision for distribution of income in its US-64 scheme," the sources said.

UTI told Sebi that it was not possible for them to cut dividends as it will be taken negatively by the market. UTI officials explained to Sebi that even if the provision for income distribution was higher than the income, the market sentiment was better each year towards the end of June as compared to the previous year. Sebi was also informed that the situation had a direct linkage to the performance of the market.

According to the UTI balance sheet for 1996-97, the income for the fund through US 64 stood at Rs 2,515.98 cr for the year ended June 30, 1997 and the provision for dividend outgo through income distribution was Rs 2,805.63. Money was procured from the unit premium reserve to the tune of Rs 324.28 cr to bridge the gap. The sensex was 4,256.09 on June 30, 1997 against 3812.52 on June 28, 1996. This shows a net increase.

The situation was even worse in 1995-96. UTI's dividend outgo was Rs 2702.89 cr against an income of Rs 1665.44 cr. The unit premium reserve was used to the extent of Rs 861.15 cr. The sensex mirrored a similar positive sentiment when it closed at 3812.52 on June 28, 1996 against 3247.36 on June 30, 1995.

Sebi sources say that the problem for UTI in 1997-98 was due to the poor market sentiment as on June 30, 1998. The sensex closed at Rs 3250.69 on June 30, 1998 registering a net fall of nearly 1000 points over the June 30, 1997 close of 4256.09. The negative reserve problem surfaced when the market suffered a setback along with its Rs 1,377.77 cr worth of unit premium reserve getting eroded.