ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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UTI : Oceans of Spilt Milk


UTI continues to be in the news, for the wrong reasons and not for the first time. It is a long history in fact. Over a quarter century ago, when it had only US-64 to manage, it faced the first of its many crises. Administered interest rates had been raised sharply by the RBI sometime during the early 1970s and it had seemed that there would be a run on US-64 since the yield on the units appeared out of tune with the banks’ deposit rates. Fortunately, the UTI was then quite small and the crisis blew over.

UTI grew aggressively later. Equity markets were booming – largely because UTI’s market activities influenced the direction of the market. UTI was already the largest institutional investor. This was its real undoing. Its management seemed to forget that it could not violate market principles with impunity. All canons of good corporate governance were thrown to the winds. UTI management lost sight of the fact that it was managing a mutual fund as well as of the distinction between an equity-oriented fund and an income fund. Also missed was the point of why US-64 had become a member of the inter-institutional forum to participate in terms loans extended by the DFIs. It was the absence of a worthwhile corporate bond market that had forced G S Patel, the second chairman of UTI, to participate in loans to good companies by the inter-institutional consortium. When things changed and the supply of corporate bonds grew UTI should have gradually eased itself out of term loan activity.

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