The country's largest mutual fund is believed to have also asked corporates to refrain from redeeming their holdings as well. "Corporates will also stay away from redemption as otherwise UTI will hammer their scrips down. A leading blue-chip had to withdraw its application this morning after applying for redemption," a broker said.

"We will stand by UTI at this moment, even though it may not be a correct business decision. It is unfortunate that there has been an erosion in US-64's net asset value (NAV), but we will not redeem now," a treasury head with a leading public-sector bank said.

UTI revised the deficit on US-64 on Tuesday to Rs 1098.49 crore and admitted that the flagship scheme's NAV has eroded.

Sources said that chairman PS Subramanyam had called upon chiefs of financial institutions and large public-sectorbanks on Tuesday and requested them to stand by UTI at this juncture.

According to sources, a number of banks and corporates had filed for redemption on September 30. "But this morning we have withdrawn the applications. Even at the higher repurchase price we will not apply for redemption," an institutional source said.

While banks admitted that there was pressure from the top advising them against redeeming their US-64 holdings, most bankers said things will look up for UTI and the mutual fund will make up for the erosion on NAV in the current financial year. According to senior bankers, the UTI top brass has assured banks and institutions that they should have faith in the fund.

"Logically, banks should sell at this point. However, if UTI is assuring banks the yield that they (the banks) normally earn, then I guess banks will not redeem," an analyst with a leading local brokerage house said.

"All this is being done for the sake of strategic interest even though it does not make good business sense,"treasury sources said.

UTI has subscribed to equity issues of a number of banks in a big way and is the largest institutional shareholder in ICICI. The fund also subscribes to bond issues of ICICI, IDBI and IFCI regularly.

"They have assured that they will give us a 14 per cent yield at the end of the year, and this is what we are concerned about," a treasury head with a bank said.

Banks traditionally redeem their US-64 holdings on the last day of the first-half to show higher income from investments. "We have not done this now even though we applied for redemption," a source with a private bank said.