The finance minister has given three weeks' time to the chiefs of financial institutions and the State Bank of India to prepare the blueprint for the proposed mutual fund.

The idea was mooted at Thursday's closed-door meeting between Sinha and heads of financial institutions and banks in Mumbai. The meeting was attended by the chiefs of the Industrial Development Bank of India, Unit Trust of India, ICICI, Industrial Finance Corporation of India, Infrastructure Development Finance Company, Life Insurance Corporation, Exim Bank and State Bank of India.

Other issues which came up for discussion at the meeting was the increase innon-performing assets in the financial sector, slow credit offtake, overcapacity in certain sector like steel and cement and disbursement of the proceeds of the Resurgent India Bonds. "Sinha is firm that RIB proceeds should be invested only in infrastructure financing," one institutional source said.

According to the disinvestment plan, the mutual fund will be managed by an asset management company which will have 51 per cent holding by the government and 49 per cent by banks and financial institutions.

"Everything is at a conceptual stage. It is a kind of private placement of the government stake in PSUs with banks and institutions. The mutual fund, which will tap funds from banks and financial institutions, will subscribe to the government equity that will be divested in specific public sector enterprises. The mutual fund will, in turn, offload the equity in the market through public offerings at a later date when market conditions are conducive," said an institutional source.

According to sources,another idea is to allow the UTI--in arrangement with some banks and institutions--to pick up the PSU stock to be disinvested at a discounted price. Since UTI is already an asset management company it will manage these shares and sell them off to retail investors on a minimum profit basis.

"It could be some sort of a private placement in the first stage and offloading in the market at the second stage. The extent to which the banks and institutions would subscribe to the government disinvestment would be as per an arrangement between them and UTI," said a source.

It is felt that at least two of the forthcoming four disinvestment exercises might be carried out through the new route, if the modalities can be worked out fast.

Sources pointed out that Sinha has not dropped the proposed special purpose vehicle (SPV) route, suggested by finance secretary Vijay Kelkar, for PSU disinvestment. "The proposed mutual fund will be a parallel vehicle to bulldoze through the privatisation process of public sectorenterprises despite the dull market conditions," sources said.

The finance ministry had last week proposed the launch of SPVs for kickstarting the disinvestment process. The proposal is to set up an SPV as a specialised corporate body with the objective of holding and selling blue chip public sector equity in order to reduce the government's stake in them to below 50 per cent.

The government has fixed a disinvestment target of Rs 5,000 crore this fiscal. The centre has not been able to make any headway in divesting its stake in PSUs for the last two years due to unresponsive market conditions. In 1997-98, the government failed to meet its divestment target due to adverse conditions in domestic and foreign equity markets. With the slowdown in economic growth, the government is depending heavily on the divestment proceeds to bridge the widening fiscal deficit.

Disinvestment in Container Corporation of India (Concor) is scheduled to begin shortly, which includes a domestic as well as an internationalfloat. The other PSUs which is ready for disinvestment are Gas Authority of India, Indian Oil Corporation and Videsh Sanchar Nigam Ltd (VSNL).