Friday, December 20, 2002, Chandigarh, India

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Ketan Parekh blamed for securities scam
US-64 fiasco: JPC indicts ex-Finance Secy, UTI ex-chief
S. Satyanarayanan and Gaurav Chaudhury
Tribune News Service

New Delhi, December 19
In a clear and stern indictment of the Union Finance Ministry and key currency administrators, the Joint Parliamentary Committee (JPC) probing the securities scam has held the then Finance Secretary Ajit Kumar, former UTI Chairman P.S. Subramanyam, and principal contributor IDBI squarely responsible for the collapse of US-64, the beleaguered scheme of the country’s largest mutual fund, the Unit Trust of India (UTI).

The final report of the JPC, which was tabled in Parliament today, gives a clean chit to the then Finance Minister Yashwant Sinha but points more than a needle of suspicion towards Finance Ministry officials, including Mr Ajit Kumar.

In a stern conclusion, the JPC report notes that “autonomy in day-to-day management of the UTI cannot absolve the ministry of its statutory responsibilities and accountability to Parliament”.

On the securities scam, the committee blamed tainted big bull Ketan Parekh for his price manipulations in the securities market in connivance with some banks and corporate houses.

It has underlined the need for a thorough probe expeditiously by market watchdog Securities Exchange Board of India (SEBI) and the Department of Company Affairs.

About the freezing of redemption of US-64 units, the committee held that even if the Chairman of the UTI did keep everybody in the dark, the JPC noted that the “ministry did little to bring itself out of darkness”.

The JPC, which details the events preceding the collapse of the US-64 scheme last year, noted that more urgent and immediate action on the part of Finance Secretary Ajit Kumar could have avoided a tailspin in US-64.

The Finance Secretary had received a letter at his residence from the UTI Chairman on the evening of June 30, 2001, (a Saturday), which clearly stated that the UTI Board would meet on July 2 and was considering two options — (i) freeze US-64 redemptions or (ii) convert US-64 to NAV basis.

“Quite obviously, this was a very important piece of news and the Finance Secretary should have acted immediately. Finance Secretary Ajit Kumar’s action should have commenced immediately after discussion on this subject with the Joint Secretary on June 29, 2001,” the report noted.

The UTI Chairman met Joint Secretary, Capital Market Division, and the meeting was unscheduled, without any prior agenda and there was a discussion on the impending problems of the UTI.

The Joint Secretary discussed this subject with the Finance Secretary, but no further action appears to have been initiated by the officials of the Finance Ministry.

However, the Finance Secretary mentioned this fact to the Finance Minister only on the morning of July 2, 2001, after the weekend was over.

After receiving a formal letter from the UTI Chairman indicating the two options to be placed before the Board of Trustees, taking no action to immediately discuss the matter with the Finance Minister of finding solutions to the serious problem that could arise consequent to the Board meeting on July 2, 2001, “shows that the Secretary considered the problem in a routine and casual manner, which is not expected from an officer of his rank”, the report concluded.

While the Chairman of the UTI did keep the ministry in the dark upto June 29, 2001, despite repeated directives from the Finance Minister to his officials from April, 2001, to find out what was happening in the UTI, “the officials limited their interaction with the UTI to Chairman.... no analysis was made in the ministry of the Chairman’s letter of May 18, 2001... “ the report said.

On May 18, 2001, the then Chairman of the UTI, Mr P.S. Subramanayam, wrote to the then Finance Secretary (Mr Ajit Kumar), informing him of the status of US-64 and the strategy in respect thereof.

Mr Subramanyam had written in the letter that the pricing policy for the scheme from July, 2001, onwards needed to be considered based on the underlying NAV and the positioning of the scheme. The committee has also noted that the present state of affairs in the UTI is a consequence of the negligence of its principal contributor, IDBI ( which is also a public institution), concentration of power in Chairman of the UTI without adequate checks and balances to prevent its misuse and unwillingness of the UTI management and the government to make the necessary legislative and organisational changes to restructure the institution and bring it under the purview of the market regulator.

Moreover, investment decisions in the UTI were not always prudent or in accord with the interests of the investors. The UTI’s competitive environment was constantly changing and 1993 onwards, successive governments very well realised that the UTI had to be revamped to keep pace with change, but did not take effective measures on this front, as they did not wish to lose control over it, the report noted.


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