The Unit Trust of India will bank on its asset reconstruction fund (ARF) to play a key role in the improvement of the net asset value (NAV) of its schemes.
Against the gross non-performing assets (NPAs) of Rs 6,800 crore, UTI has made provisions to the extent of 90 per cent, or around Rs 6,100 crore. With this support, UTI has decided to avoid going in for an asset reconstruction company (ARC) because this will externalise the problem.
Asset reconstruction companies would at best pay around 25 per cent for non-performing assets and the loss in value would have to be absorbed upfront, UTI chairman M Damodaran told Business Standard.
"Given the high level of provisioning, it is better to set up an asset reconstruction fund under a president of the deputy general manager (DGM) rank to recover value from non-performing assets. The returns will be much higher and come in a gradual manner which will meet the UTI's requirements," Damodaran said.
The constitution of a separate asset reconstruction fund, now under Ajit Prasad, had freed fund managers from handling non-performing assets and trying to maximise returns from them. Also, the asset reconstruction fund would be focused on recovery and, according to indications, this was going as per expectations, he added.
As the provisioning has been done to a comfortable level, the recovery through asset reconstruction fund will be the added on to the schemes and will go a long way to enhance the net asset value.
The government had extended an assurance to UTI to underwrite the shortfall it faced in any scheme. This had ensured that unit-holders would get a reasonable value on redemption within prescribed limits, while monthly-income plan (MIP) holders would have their capital protected.
The chairman said this had eased much of the pressure on UTI and fund managers were no longer required to sell holdings at a price that would make the uncomfortable.
A sale decision would be governed by considerations like alternative investment options and the cost of holding on.
