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Unit Trust, IDBI advised to wash hands of banking

New Delhi, Dec. 18: The government has directed ailing development financial institution IDBI and fund management firm, Unit Trust of India (UTI) to hive off their respective non-core assets — UTI Bank and IDBI Bank.

Explaining the significance of the move, a top finance ministry official said: “In line with the directive both UTI as well as IDBI will have to hive off their subsidiary banks...sooner or later.”

”The government is of the view that UTI should concentrate on its core activity of being a fund manager, instead of running a bank,” the official said. “As far as IDBI is concerned, it will have to sell off IDBI Bank since it is on its way to acquire a banking licence.”

Currently, UTI has an equity holding of 41.71 per cent (8,00,00,070 equity shares) in the bank’s paid-up equity of Rs 191.88 crore whereas IDBI holds around 57 per cent equity (7,98,31,174) in its paid-up capital of Rs 140 crore.

Financial analysts said both UTI and IDBI will earn a minimum of around Rs 300 crore and Rs 207 crore, respectively, even if they offload the entire equity-holding at the current traded price of Rs 38 (UTI Bank) and Rs 26 (IDBI Bank).

The official said the sell-proceeds will be utilised to restructure the institutions’ core operations. Recently, the government has provided UTI a Rs-14,500 crore bailout package to meet possible liabilities from its fund schemes of assured returns after UTI was unable to meet redemption pressures last year.

“The bailout packages are upsetting the country’s balance sheet without any tangible results,” the official said and added that UTI could have easily raised the bailout amount by going in for block sales of the equity it holds in some 50 top companies. However, the move could have had a knock-on effect on the market.

The government, in an effort to revive IDBI, has allowed the institution to metamorphose into a commercial bank by repealing the IDBI Act instead of going in for a capital infusion. IDBI, over the years had provided long-term loans to a host of corporate. But over the past few years, the principle of borrowing short and lending long has led to severe asset-liability mismatches.

IDBI chief P. P. Vora had ruled out the option of a reverse merger with IDBI Bank. “We would like to retain our IDBI brand equity...IDBI Bank will have to acquire a new name for their banking operations,” Vora had said.

IDBI Bank has a deposit base of Rs 5,860 crore with a network of 252 ATMs and 90 outlets spread across 63 cities, whereas UTI Bank has a deposit base of Rs 13,700 crore with a network of 635 ATMs and 171 branches spread across 71 cities

UTI Bank, with a lower capital adequacy ratio of 9.6 per cent, has registered a net profit of Rs 80.15 crore for the half-year period of fiscal 2002-03. During the same period, IDBI Bank clocked a lower net profit of Rs 27.23 crore as against Rs 32.25 registered in the corresponding period last fiscal (2000-01).

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