Four regionally strong banks -- Bank of India, Corporation Bank, Allahabad Bank and Oriental Bank of Commerce -- are in the fray to buy out sponsor's stake in UTI Mutual Fund that manages assets worth Rs 20,000 crore (Rs 200 billion).

The government is in the process of finalising the deal, which has to be completed by April 1, official sources told PTI in New Delhi on Wednesday.

Last year, market regulator Securities and Exchange Board of India directed the present sponsors -- Life Insurance Corporation, State Bank of India, Punjab National Bank and Bank of Baroda -- to sell their 25 per cent stake in the country's biggest mutual fund to avoid "conflict of interest".

Accordingly, the government had invited presentation from banks willing to buy out the stakes of LIC and the three banks.

The finance ministry is believed to have zeroed in on the four banks -- BoI, Corporation Bank, OBC and Allahabad Bank -- to buy the sponsor's stakes.

BoI chairman M Venugopalan confirmed the development but declined to give details of the price at which the banks would buy out the sponsors' pie. "It is upto the government to decide," he said.

Although LIC and the three banks invested Rs 2.5 crore (Rs 25 million) each in the restructured NAV-based UTI Mutual Fund that has a paid-up capital of Rs 10 crore (Rs 100 million), they are now asking for a higher amount for exiting the fund.

"The sponsors, who were once reluctant to take over the stake in UTI Mutual Fund, are seeking a premium," UTI chairman M Damodaran said, referring to the improvement in the financial health of the fund.

UTI Mutual Fund's assets under management grew by over 50 per cent from Rs 13,000 crore (Rs 130 billion) in February 2003 to Rs 20,000 crore now.

After the merger of IL&FS Mutual Fund is completed by March, UTI's assets would grow to over Rs 22,500 crore (Rs 225 billion).

The improvement in the financial health was witnessed after Damodaran took charge of the fund, which was restructured as per the Sebi norms for mutual funds.

UTI Mutual Fund has a 3-tier structure -- a sponsor, a trustee and an asset management company.

The restructuring was done in line with the recommendation of the Joint Parliamentary Committee that probed the UTI fiasco two years ago.

JPC had also recommended there should not be any conflict of interest between the sponsors and their own mutual funds.

LIC and the three banks have a mutual fund of their own and hence it is not prudent for them to retain their stake in UTI Mutual Fund, sources said referring to the SEBI mandate.

The recent distribution tie ups between UTI Mutual Fund and three banks -- BoI, Corporation Bank and Allahabad Bank -- also validate the long term commitment of the banks in the fund.

The banks not only gain from adding the country's biggest mutual fund schemes in the list of financial products sold by their branches but would also benefit from the dividends they get from UTI.