Bankers Play Hardball On Uti & #39;S Liquidity Package

Public sector banks are planning to set stiff conditions for the Unit Trust of India (UTI) liquidity package, following the Central Bureau of Investigation raids and arrests.

Bankers have already decided against extending clean loans as the government is not willing to offer a letter of comfort to back the loans.

The banks now prefer to give loan against collateral of securities but at a higher margin -- around 50 per cent. Banks also want the right to sell of the securities to recover their money.

According to banking sources, UTI has not yet got back to them with any concrete proposal after eight bank chiefs had held a meeting with the UTI brass on last Thursday and subsequently UTI chairman M Damodaran met finance minister Yashwant Singh on Friday.

 

"We have not heard anything from the UTI so far. We will offer loan as long as it is commercially viable. This is not a bailout package," said a bank chairman, under the condition of anonymity.

Banks will charge 10 per cent interest rate on this facility. "Since the UTI is set to open the exit window for its flagship US-64 units on August 1, 2001, it may not be able to finalise the liquidity support package before that. In that case, the institution may ask for a bridge loan from the State Bank of India (SBI) to tide over the temporary liquidity problem," said a source.

The SBI has already extended a revolving repo facility to the UTI besides a line of credit backed by government securities.

According the plan, the SBI will lead of consortium of banks for a Rs 4,000 crore worth of liquidity support package.

Banks have asked for the right to pick and choose the stocks to be kept as collaterals and the freedom to sell the stocks to recover the money. In other words, there will not be any lock-in period for these stocks.

By selling these stocks through offmarket deals, the UTI will be able to pare the size of the portfolio.

A source in the institution said the UTI may pledge stocks outside US-64 scheme also to generate liquidity.