Damodaran: On a shopping spree

New Delhi, Feb. 10: UTI Mutual Fund, India’s largest mutual fund, is looking at acquisitions to grow.

“In the next 12 months, we are looking at significant growth both organically and inorganically because we believe the process of consolidation in the industry has begun,” chairman and managing director M. Damodaran said here today.

He said the fund was not planning to offload its stake in UTI Bank, in which it holds around 47 per cent. “It’s a strong bank...why should we quit it,” Damodaran said. Recently, HSBC Holdings acquired 14.71 per cent in UTI Bank from CDC Financial Services (Mauritius) and South Asia Regional Fund for Rs 306 crore.

UTI Mutual Fund, composed of the net asset value schemes of the erstwhile Unit Trust of India, recently acquired IL&FS Mutual Fund, worth around Rs 2,500 crore.

“We have money to fund this acquisition along with two to three other acquisitions,” said Damodaran. However, he refused to divulge the cost of acquiring the 10 schemes of IL&FS. With this merger, the total number of schemes managed by UTI Mutual stands at 52.

In August 2002, the government had repealed the UTI Act of 1964 to bifurcate the fund into two parts — UTI-I and UTI-II — and provided a Rs 14,500-crore bailout package to meet possible liabilities from assured fund schemes worth Rs 31,000 crore of UTI-I.

On the premature closure of the seven assured schemes of the former UTI, Damodaran said the government would have to bear a loss of around Rs 3,000 crore while interest rates on the remaining eight schemes would be reset.

“We would reset interest rates wherever there is an option for us. But we would adopt a strategy to minimise the impact on the government,” he said adding that the gross non-performing asset (NPA) amounts to Rs 6,000 crore while the net NPA is only Rs 150 crore.

“As we recover...the shortfall in each of the schemes will be reduced,” he added.

In January 2003, the government had transferred the management control of Unit Trust of India II (UTI-II) to an asset management company. This was promoted by State Bank along with Life Insurance Corporation, Bank of Baroda and Punjab National Bank with a capital infusion of Rs 2.5 crore each.

On the issue of replacing these four promoters, Damodaran said: “They are now asking for a premium to exit. But a year ago, they were very reluctant sponsors.”

The government has already initiated the process of replacing the promoters of UTI Mutual Fund since they operate asset management firms of their own.

The fund also plans to launch six more schemes. “We have plans to launch six more schemes for which we have obtained Sebi’s nod. These will be sectoral funds focusing on pharma, auto, PSU and large-cap companies,” he said.