The board of trustees of UTI Mutual Fund has written to the board of UTI Asset Management Company (AMC), drawing its attention to Securities and Exchange Board of India (Sebi) rules which state that by March 2019, UTI AMC’s public sector shareholders will have to lower their stakes to less than 10% each.
Life Insurance Corporation of India (LIC), State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda (BoB) each hold 18.25% of the AMC’s shares, US investment firm T Rowe Price holds 26% and employees 1%.
According to Sebi’s March 13, 2018, regulations, no sponsor of a mutual fund — all four PSUs run their own mutual funds — can have more than a 10% stake or voting rights “in the asset management company or the trustee company of any other mutual fund”. If firms are not in compliance with this, they have one year to fix this.
Interestingly, even when the PSUs invested in UTI, Sebi’s rules said that none of them was to be involved in the operations of UTI AMC. Yet four of the five Indian directors of UTI AMC are former senior executives of the PSUs. It was as part of the process of making UTI AMC Sebi-compliant that, last year, UTI AMC started work on an initial public offering (IPO).
While the PSUs were to see their stake lowered, even T Rowe Price was agreeable to lowering its equity to below 26% since that would pave the way for a board-managed company — 26% gives it veto rights on certain decisions.
The IPO, however, has kept getting delayed since LIC is keen to take over UTI AMC and merge it with its own AMC; SBI was also keen on taking over UTI AMC earlier, but later supported the IPO plan.
The trustees have also said that while the current CEO and MD Leo Puri’s term expires in August 2018, no attempt has been made to start the process of finding a replacement or reappointing Puri before that even though not having a CEO/MD will adversely affect the IPO process. “Last time around,” they have said, “the vacancy took over two years to be filled.”
The trustees have pointed out that, should the shareholders be unable to agree, the matter has to be referred to the human resources and compensation committee of the company’s board. The letter says that the CEO/MD has to be appointed by an independent agency or a search committee — it says this is a Sebi requirement to avoid any conflict of interest of the shareholders.
Since the finance ministry tried to — unsuccessfully — foist its nominee as the CMD of UTI the last time around, the trustees’ letter says the Sebi rules “prescribe that no appointment of a Director of an AMC shall be made without prior approval of the Trustees”.