Right from the time in 2011 when the finance ministry tried to foist its nominee as the Chairman and Managing Director (CMD), the UTI mutual fund has had an unfortunate history of government interference though, technically, UTI is not even a PSU since the government does not hold a direct stake in it. And while the government gets its power from the fact that four PSU financial institutions – LIC, SBI, PNB and Bank of Baroda (BoB) – hold an 18.25% stake each in UTI, this is not permitted by Sebi rules which say anyone that runs an Asset Management Company (AMC), as LIC/SBI/PNB/BoB do, cannot have more than a 10% stake in another AMC. This Sebi guideline has to be complied with by March next year.
Indeed, even when the four PSUs were given a waiver to hold a stake in more than one AMC, Sebi rules were clear than none were to play an active role in the running of UTI since they were running AMCs in competition with UTI. Yet, most of their nominees on the board of UTI AMC were former executives of these PSUs and not, therefore, really independent directors. And even after it was finally decided that there would be an IPO to lower the stake of the PSUs to 10% each—US investor T Rowe Price which has a 26% stake right now would also see a dilution—all manner of hurdles were put to ensure this got delayed. Meanwhile, LIC is trying to get a former boss, its nominee on the UTI board, appointed as the UTI chairman.
What complicates matters is that the current UTI MD and CEO’s tenure ends in less than three months from now; in which case, a year’s extension to complete the IPO is probably a good a good idea. While some of the PSU shareholders have expressed concern over UTI’s rank in the mutual fund league tables slipping over the past few years, UTI has done well with a 70% compounded increase in its pension business over the past four years, a 21% increase in its mutual fund assets under management (AUM) and a 18% growth in profits. For UTI to do better, however, it is critical that top management time not continue to be taken up with board-room squabbles and attempts by the government or its PSUs to muscle in on it. Given that, the last time around, it took two years to find an MD and CEO for it, the finance ministry has to order its PSUs to prepare to disengage from UTI—four years ago, UTI’s board had proposed Leo Puri as its CMD but after a board disagreement, the job was whittled down to MD and CEO. At some point, Sebi must also revisit its guidelines since, with PSUs controlling 40% of UTI’s shares—assuming the IPO goes to plan —the finance ministry will continue to call the shots in the supposedly board-managed company.
And if LIC wants to make a pitch for taking over UTI’s business—at one stage, SBI was making a play for it as well—this has to be done through an open bid after the IPO since that will set a benchmark price; it is then up to shareholders to accept/reject the bid. The government also has to keep in mind that it brought in T Rowe Price in an attempt to professionalize UTI after the US-64 fiasco but the board-room shenanigans, including trying to foist a CMD/Chairman on UTI, make it clear that this is far from happening.