The UTI move is supported by other term lending institutions. "This will be a good route to help out the corporates which have not been able to raise equity in the primary market," said a source in ICICI. The Industrial Development Bank of India (IDBI) is also exploring the possibility of picking up equity stakes in major projects provided there is an exit route through a buyback agreement.

According to the proposal, UTI along with other term-lending institutions will enter into an "equity contract" with corporates which will allow the institutions to sell their holdings back to the company thus providing an adequate exit route.

In a letter written to Sebi chairman DR Mehta, UTI chief PS Subramanyam has urged the regulator to allow theinstitutions to enter into such agreements so that projects starved for funds could be kick-started.

When contacted, Subramanyam said that he had written the note on behalf of financial institutions. "With the primary market in the dumps, promoters are not being able to raise equity. We, on the other hand, are keen to pick up equity in projects provided we have an exit route. If the buyback agreement is allowed then projects could take off as the equity component of these projects could be tied up," said Subramanyam without giving details of his letter.

Sebi sources said that the regulator is examining the UTI proposal and is expected to give its views on the matter shortly.

These sources pointed out that mutual funds including UTI are currently not allowed to invest in instruments which are non-transferable and illiquid. They are allowed to pick up privately placed debentures but not equity and relaxation in this regard would have to be made to Sebi's Mutual Fund Regulations.

On the buyback front,Sebi's guidelines for buyback--which are applicable to listed companies--would have to be followed. If the company in question is an unlisted entity then the guidelines being framed by the Department of Company Affairs (DCA) would be applicable.

Sebi sources said that while all mutual funds including UTI would need to adhere to the Sebi norms in this regard, the same would not be applicable to other financial institutions as their investments do not come under the purview of Sebi. But the buyback agreements entered into between them and the companies would be subject to Sebi or DCA guidelines, depending on the status of the company.

There are a number of large projects, especially in the telecom sector, which are starved for funds. These projects are facing delays owing to this and this in turn is leading to cost escalation. Institutions are not willing to lend as the promoters have not been able to raise the equity.

The UTI move is yet another attempt by the institutions to "bailout" those projectswhich have been facing cost and time overrun on account of the promoters' failure to tie up the equity component. IDBI chief GP Gupta recently said his institution is willing to underwrite up to 30 per cent of equity issues to help corporates enter the capital market. The institution is also ready to offer bridge finances to corporates.

"This is not part of a strategy to prop up the capital market. We want to help our corporate borrowers to raise money through equity issues so that institutions are in a position to disburse funds. A sizable number of projects have not been able to take off as the promoters are not able to access the euqity market," GP Gupta told The Financial Express.