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Tuesday, Apr 09, 2002

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Govt set to distance itself from UTI, give up powers -- Act amendment on the cards

Shaji Vikraman
Hema Ramakrishan

NEW DELHI, April 8

THE structural changes under way in Unit Trust of India (UTI) through proposed legislative changes encompass a proposal wherein the Government will give up its powers to appoint the Chairman of the Trust.

This, coupled with the move, to convert the Trust into a corporatised entity on the lines of other SEBI-regulated mutual funds, was perhaps the only way, the Government could distance itself from UTI in case of a crisis in the future, officials said.

Given the wide investor perception of the implicit Government support to UTI, a key to distancing the Government from the affairs of the Trust could well be the changes to the provision in the UTI Act, relating to the appointment of the Chairman. Technically, the Government's involvement going by the Act now is restricted to only the appointment of the Chairman of UTI.

The Act says that the UTI Chairman has to be appointed by the Central Government in consultation with IDBI. Currently, the UTI Chairman's appointment is cleared by the Appointments Committee of the Cabinet (ACC).

On paper, the board of trustees is nominated by the IDBI, the RBI and other contributors to the initial capital of the Trust.

Only when the provision on appointment of the UTI Chairman is done away with will the Government be in a position to maintain a distance from the affairs of the Trust, according to senior Government officials.

Among the crucial decisions, which the Government has to take now is whether to repeal the UTI Act, 1963 or to just carry out amendments to the Act.

A final view will be taken soon after a couple of meetings between the top Finance Ministry officials led by the Secretary, DEA, Mr C.M. Vasudev, and the UTI Chairman, Mr M. Damodaran.

If the Government is to consider the option of repealing the UTI Act, then it will have to ensure that an alternative structure is in place. This will imply the setting up of a corporate entity similar to other mutual funds and regulated by SEBI.

In such a scenario after the repeal, the appointment of the Chairman or chief executive will no longer be the prerogative of the Government. It will then be done by the board of trustees as is done in the case of other mutual funds.

Otherwise, if the restructuring is to be done by only carrying out amendments to the Act, the Government will have to reckon with the residuary part of the statute. This may well leave the Government vulnerable to any pressure in case of a crisis faced by the UTI in the future as the Act will still be in vogue.

``We cannot have a vacuum if the Act is repealed. So we need to put in place arrangements to ensure a smooth transition to a professionally run mutual fund,'' according to a senior Government official.

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