Uti Plans Fresh Bid To Draw Bank Moolah For Equity Scheme

The Unit Trust of India proposal to pool funds from public sector banks which would be generated through the latters incremental deposits has not received any favourable response from banks.

The UTI will now make a fresh attempt to woo this investment from banks for its new equity scheme announced recently.

Meanwhile, State Bank of India and Bank of India are in the process of moving independently towards this objective and will form a team internally to take investment decisions in equities through the secondary market.

According to senior UTI officials, the institution sounded out to banks last year on investing in the secondary market through a fund. The UTI executive trustee P J Nayak told Business Standard: The proposal to banks was made 5-6 months back. However, the market conditions were not suitable for investment in equities. The investment interest of banks is primarily in debt funds. We have already received investment from banks in debt related funds like US-64.

 

Nayak felt that it will take some time for them to convince banks about making equity related investments as returns from government bonds and debt instruments are still attractive. According to RBI statistics of Rs 89,778 crore is the figure of total incremental deposits of banks. Five per cent of this amount amounts to Rs 4488.90 crore which is available for investment exclusively in equities. Banks are looking at investment from the incremental deposit pool as a part of their treasury management. They are looking for primarily assured return funds and bonds brought out by financial institutions. It will take some time for changing this perception in favour of equity. At the same time, the equity side of the market should also look up, he added.

According to leading bankers, mutual funds would have to attract banks which do not have the necessary expertise of the secondary market. Large banks like the State Bank of India and Bank of India will set on their own and develop the necessary expertise.

Says P K Bhattacharjee, chief financial officer at SBI: We are in the process of building up the necessary infrastructure required for investing in the secondary market. We need to have a strong market research capability and on-line access to market information. UTI did make a presentation. However, we would not be interested in entering the market through any mutual fund. We will do it on our own.

A senior Bank of India official also hinted that they will not be interested in entering the secondary market through any other bank. He said: Banks are probably waiting and watching. Banks are not accustomed to investments in the secondary market for equities. They need some time for developing the necessary expertise. Bank of India may not prefer entering this market through a mutual fund as it may develop its own team.

The BoI official felt that it is very difficult to create a team in a nationalised bank that can be made accountable for quick investment decisions that it would take. Decisions have to be taken on the spot and officers at nationalised banks are used to playing safe games. A new team has to be created which would be prepared to take risks. Nayak felt that the investment picture varies from bank to bank. He said that the institutional funds scheme launched by UTI received a very positive response from some public sector banks.