Despite denials by sebi chairman D.R. Mehta, the cbi claims to have evidence to link him with uti's investments in the controversial Lucknow-based Cyberspace Infosys.Mehta, claim cbi sources, was regularly in touch with Subramanyam to help relative Rakesh Mehta of Renaissance Securities place uti's share in Cyberspace. Repeated rejections by uti's equity research cell were overruled.
But can the political class afford a full-fledged probe into the financial sector? Consider this. The finance ministry has decided to review all investments made by development financial institutions (dfi) in the last three months. This, sources claim, followed after Sinha was informed last week that ifci sanctioned a Rs 550 crore loan to Flex Industries, allegedly at the behest of influential Samajwadi Party leaders. The same day the ministry forced other FIs to pump an additional Rs 840 crore into the beleaguered ifci.
Senior cpi leader Gurudas Dasgupta, for one, has grave doubts about whether any politician really wants to dig deep into the mess. After all, he says, it was a non-bjp government that scuttled cbi's probe into uti's investments in Reliance and Y.P Singh, the superintendent of police who led the investigation, was transferred. Says he: "uti was also involved in similar dealings with many big companies. The US-64 scandal only vindicates the fact that economic fundamentals of companies hardly guide uti's decision-making. Everyone knows that uti is a government-backed mutual fund where the government continues to pull strings."
Observers feel that instead of examining only the Cyberspace deal, as it's been mandated to do, the cbi should focus on the political pressure on the fund which actually separates it from private mutual funds. After all, even Jardine Fleming invested in Cyberspace. But such an inquiry is politically impossible as the entire House would love to avoid any confrontation with reality. And, most certainly, no government would seriously investigate itself.
Take the case of the missing papers and the transcripts of taped conversations between Subramanyam, the pmo and the finance ministry. "We've demanded that all this be placed in Parliament," says Congress MP Priyaranjan Das Munshi. But the papers are still missing. Says Manmohan Singh: "The government seems uninterested in pursuing the current probe. Remember that private placements with Reliance earned profits for uti."
In the meantime, as redemption of US-64 restarted on August 1, uti centres saw only a trickle of people. By the second day, its total outgo was Rs 14 crore. Indeed, it has now withdrawn the special counters set up for the purpose. The average demand per person was half of the 3,000 units that uti has allowed for redemption. Says M. Damodaran, chairman: "The absence of panic among investors indicates that uti has not lost the faith and loyalty of the average investor."
The truth, however, is that investors are playing the wait and watch game. Says Manubhai Shah of the Consumer Education and Research Centre (cerc): "People are shocked and feeling terribly let down." Consumer organisations are waiting to see how pressure from the Opposition and the Shiv Sena will eventually turn the entire affair in their favour. cerc has proposed redemption for a value of up to Rs 1 lakh akin to the cover the Reserve Bank of India provides for bank deposits in the case of a bank going bust. "uti has always been promoted as a government-backed, solid scheme that has the security of bank deposits and postal savings. So it's only fair that the redemption offered is similar," says Shah.He is also asking for unlimited redemption for charitable trusts and public utilities so that the common man doesn't further suffer indirectly. If things don't improve, some of them will definitely approach the courts.
uti has rustled up a credit line of Rs 10,000 crore to be able to redeem the units even if there is a rush. And with fears of large-scale redemption being allayed, the US-64 prices on the stockmarket firmed up by Rs 0.50 to Rs 9.25 on August 1 and increased to Rs 9.45 the next day. But analysts point out that the money is after all a loan. And if the nav is below Rs 10, who funds the difference?
Says Damodaran: "I wish I was a soothsayer and that soothsaying was an accurate science. However, I anticipate a steady recovery in the economy and the market." While the damage control exercise continues, and the scandal further unfolds, it would be salutary for all concerned to keep in mind the following extract from uti's mission statement: "To keep the common man in sharper focus and to encourage savings and investment habits in him, to bring to the common man the prosperity of capital markets at the minimum risk through the habit of investing in units."
And Arijit Barman With Charubala Annuncio and Priyanka Kakodkar