The four public sector sponsors of UTIMF have decided to recast the board of the company with their own representatives by the end of this year as a prelude to selecting a new chief executive for the company.
The company, the fourth largest mutual fund in India with a corpus of over R70,000 crore, has been without a head since February, when UK Sinha stepped down as CEO to become the chairman of the Securities and Exchange Board of India, the markets regulator.
Recasting the board will help the sponsors overturn the decision of the current board to set up a search committee to select a new CEO. A three-member subcommittee of the board headed by Anita Ramachandran had appointed Egon Zehnder, a UK-based headhunting firm, to create a short list.
But as that list did not include a nominee favoured by the finance ministry, Jitesh Khosla, currently additional chief secretary, Assam, the short list could never be considered by the board. Khosla is incidentally the brother of Omita Paul, adviser to finance minister Pranab Mukherjee.
The decision to overhaul the composition of the board will mean the new team can begin de novo, including appointing a committee to select a chief.
In the absence of a chief, a four-member team is running the fund house, which has crippled its functioning severely. There have been serious union issues in the past few months including demonstrations by employees before its head office. Meanwhile, Sebi has barred it from launching any new scheme.
The seven-member board now includes two from T Rowe Price who came on board in 2010 to join the five members, after UTIMF offered the firm a 26% stake. Four of the board members represent the interests of the public sector sponsors, LIC, SBI, Punjab National Bank and Bank of Baroda. The fifth is a representative of the public.
As per the terms of the UTIMF memorandum of association, the members were appointed for a three-year term initially, which was extended in 2009.
The arrangement was created as all public sector entities had their own mutual funds. Sebi rules do not allow an asset management company to sponsor another mutual fund, to prevent a clash of interests. UTIMF, because of the special circumstances of its birth, was allowed the limited sponsorship within which four of the board members were designated as the own nominees of the initial sponsors.
The arrangement worked well as the memorandum of association of UTIMF allowed the companies to restrict themselves from any loss beyond the initial contribution of Rs 10,000 made by them towards setting up of the fund. In the new scheme of things, this will change, as appointment of their nominees will expose them to a larger liability.