UTI ready to end scheme transfers
Fingers burnt, IDBI runs unrated bond gauntlet
Spotlight on fee income

Mumbai, Aug 5: 
The Unit Trust of India (UTI) will clamp down on inter-scheme transfers in an effort to prevent problems in one investment kitty from spilling over to others. The move, which is a fallout of the crisis in US-64, will help healthy schemes from being ruined by links with those which have deadwood investments.

That the inter-scheme transfers, once commonplace at the country’s largest mutual fund, would be stopped was indicated by UTI chief M Damodaran, when he dubbed it an “unhealthy practice” days after he took the hot seat.

The Deepak Parekh Committee had also proposed that the transfers must end when it had presented a package of suggestions to improve affairs at UTI three years ago. However, it could be implemented because of several compulsions during former chairman P.S. Subramanyam’s tenure, the most important of which was the blow to US-64 from the meltdown in infotech, communications and telecom (ICE) shares.

“UTI will have to build Chinese Walls between schemes,” Damodaran told The Telegraph recently, admitting the transfers may have affected a few schemes.

While he had talked about discouraging such practices, he said something that had been continuing for years cannot be halted immediately. “It will not happen from tomorrow”.

Fund managers would be allocated independent charge and account for only those schemes which are managed by them, he added.

The inter-scheme transfers had helped UTI in the past to paper over cracks in US-64’s investment portfolio, which included debt securities to enable the flagship fund to generate adequate dividend income.

According to analysts tracking mutual funds, almost 93.57 per cent of the Rs 1,650.17 crore that US-64 earned, had come from the profit/loss on inter-scheme transfers, including sale of investments. Analysts say other schemes have carried the burden offer generating income for Unit Trust’s flagship product.

As a result, some of UTI’s schemes had to pay for the dud investments that weighed down US-64.

Damodaran said the mutual fund major has an army of professional fund managers, and therefore, may not need to appoint professional managers to handle its portfolio. “At the most, we may consider a couple of appointments on a contract basis in new areas that we plan to enter, such as risk management,” he added.


New Delhi, Aug. 5: 
Despite losing over Rs 1,000 crore in dud bonds bought over the years, the Industrial Development Bank of India (IDBI) has gone ahead and approved the investment of another Rs 1,330 crore in bonds which have not even been rated!

According to a report now being studied by the finance ministry, the premier financial institution has cleared investments worth over Rs 1,330 crore in non-convertible debentures (NCDs) of some 55 companies over the last two years, which were never rated. In fact, some 23 of these investments are not even listed.

The two biggest investments in unrated NCDs cleared by IDBI were Rs 350 crore in BPL Cellular Ltd in 2000-01 and Rs 500 crore in Videocon Petroleum in the previous year. IDBI officials said while the Videocon Petro investment has already been disbursed, the FI is yet to actually invest the money in BPL Cellular as of March 31, this year.

Again, while the Videocon Petro investment was at least a listed one, the BPL Cellular investment was not even listed. Neither were quotes available for either of them.

IDBI also cleared a combined investment worth Rs 44 crore in two Ispat group companies — Ispat Industries and Ispat Mettalics — despite the fact that some Rs 84 crore invested in the NCDs of another Ispat group company — Ispat Profiles — have turned out to be a dud one.

Some investments in companies like Wellspun, Abir Chemicals, Jhaveri Polymers and Bharatiya Spinners, cleared in these two years, have already turned into non-performing assets.

Finance ministry officials said they are yet to ascertain why IDBI is investing in bonds which have not been rated, especially when similar bonds invested in earlier have turned out to be duds. “Since their own research findings have been proved wrong on many occasion, may be they would do well to get an opinion from credit rating agencies or other independent experts before taking such decisions,” officials said.

IDBI’s gross outstandings as on March 31 this year, by way of corporate bonds-turned non-performing assets is over Rs 1,059 crore, The Telegraph had reported a week back. Officials say they are flummoxed how a premier institution could have gone wrong even when investing in NCDs, usually considered safe investments in the market. In fact, they pointed out that of the 10 FIs under their control, only three hold NCDs which have turned bad. Besides IDBI, the others on the losers list are ICICI and the Calcutta-based IIBI.

Faced with such staggering bad debts, IDBI has written off NCDs worth Rs 87 crore for 14 lucky companies, officials said. But the remaining Rs 972.13 crore that is still due is now being reflected on the debit side of the FI’s balance sheet.


Mumbai, Aug. 5: 
The Industrial Development Bank of India (IDBI) is looking at ways to increase its fee-based income and money earned from providing guarantees, while at the same time exploring financing avenues in the service sector.

In an interview with The Telegraph, S.K. Kapur, deputy managing director, recently appointed to head the premier financial institution, said IDBI does not wish to confine itself to plain vanilla project lending.

“Too much emphasis has been placed so far on achieving volumes in sanctions and disbursements, but merely attaining volumes will not serve the purpose” Kapur said, in an indication of the FI’s new emphasis on non-project finance products.

For the year ended March 31, non-project finance sanctions stood at Rs 1,411 crore, or 49 per cent of the FI’s total sanctions.

The IDBI chief said in project finance, the focus will now be on attaining “good margins” by taking exposure in some projects, apart from focussing on AAA-rated companies.

IDBI has, in this regard, identified the infrastructure sector, apart from other service industries such as multiplexes and commercial complexes, where, Kapur felt, the returns accruing to the institution would be much higher.

Sources said the new strategy has come in the wake of the FI’s mounting non-performing assets (NPAs), with a good chunk accounted for by exposure in projects that have either not taken off, or those which continue to yield negative returns to the institution

In fact, during the first quarter of the current fiscal, IDBI’s profits were dented due to a steep rise in provisions that rose to Rs 264 crore against Rs 80 crore in the previous corresponding quarter.

Kapur said for chronic NPAs, IDBI would look at not only restructuring loans, but also speeding up one-time settlements.

He also hinted that IDBI’s plans to offload its stake in IDBI Bank Ltd have been hit by the poor conditions of the country’s capital markets. He said at this stage, the institution did not wish to offload its stake in IDBI bank as its current market price was much below its true value. “At this stage we don’t want to offload our stake and will find ways to retain this holding for some more time,” he said.

However, Kapur added various options were being examined to bring down IDBI’s stake in the bank to 40 per cent from the present 58 per cent. This includes expansion of IDBI Bank’s equity, issuing shares to the public or roping in a strategic partner.


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