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Tamal Bandyopadhyay & Anirban Nag
Mumbai, Oct 13: Non-resident Indians (NRIs) and overseas corporate bodies (OCBs) have started redeeming their holdings in US-64 in a big way. The crisis of confidence among NRIs will deal a big blow to the proposed $500 million millenniumm bond the Unit Trust of India (UTI) plans to float in the overseas market.
Confirming the development, banking sector sources said NRIs were directing their portfolio managers--foreign banks operating in India and some of the private-sector banks--to offload their US-64 holdings immediately. Some foreign banks, which offer advisory services overseas, are also advising their NRI clients to get out of the US-64 portfolio at the earliest as they think the scheme is bound to run into rough weathers.
"Once the mutual fund major decides to offer realistic return on the units, the dividend will come down. We are advising the clients to sell the US-64 units early before the repurchase price comes down," a senior banker said.
State Bank of India (SBI) sources said OCBs andforeign institutional investors had started offloading their US-64 holdings this week. "It has been a wait-and-watch game for them so far. As there is no end to confusion, they are now getting out of the US-64 portfolio. This is a fallout of the large-scale crisis of confidence despite finance minister Yashwant Sinha's announcement of government backing to the scheme," sources said. Sources in the SBI NRI branch said that there were enquiries from the institutional investors and OCBs for possible redemption.
A host of foreign banks operating in India and some of the private-sector banks offer the portfolio-management service to the NRIs. Since they play the role of non-discretionary portfolio managers, all investment decisions are made at the instance of the clients. Discretionary portfolio management--where banks take the investment decisions and offer an assured return to the clients--are not allowed by the Reserve Bank of India.
"A major chunk of the NRIs' portfolio has always been UTI's flagshipscheme US-64. We are getting bulk instructions to offload the units in the market," sources said.
Most foreign banks have pegged the minimum size of an individual portfolio at Rs 75 lakh, comprising shares, debentures and US-64 units. "The NRIs have been traditionally holding on to the units, which always pay handsome dividend. The recent fiasco has, however, made them change their mind. They want to get out of it at the earliest," a banker with a new private bank said.
The mutual fund behemoth has so far restrained domestic financial institutions (FIs), banks and corporates from redeeming their hioldings in US-64. While corporates hold the bulk of the holdings, banks and FIs hold about Rs 2,000 crore of a corpus of Rs 22,000 crore.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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