It is unfortunate that, after a solution to UTI’s 6-year-long boardroom battle looked imminent through an IPO, things are back to square one. Though US investment firm T Rowe Price was brought in to put UTI back on its feet in 2010, and offered a 26% stake—with an understanding this could be hiked later—relations in the mutual fund’s board have always been uncomfortable since the four PSU financial institutions who held a 74% stake in UTI also ran their own competing mutual funds. This was against the Sebi rule that no organisation could run more than one mutual fund, but an exemption was given, presumably because this was seen as a temporary structure after the Unit 64 collapse. With the finance ministry well in control of UTI by virtue of controlling the institutions—LIC, SBI, Punjab National Bank and Bank of Baroda—who held 74% of the mutual fund, as FE reported in April 2011, it pushed for its nominee as chief even though he did not have the requisite credentials to head a mutual fund. When UTI’s board refused, thanks primarily to T Rowe Price, the standoff ensured the fund did not have a head for two years. Emboldened by the power struggle, even after a head was appointed, SBI made a pitch to take over UTI, as did LIC—while SBI proposed a share swap, LIC offered to put money on the table.
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All of this would have got resolved with an IPO since, if the government shareholding fell to 30-40%, it would no longer be in a position to call the shots. At that point, the mutual fund would be truly board-run, even though the government would have a substantial presence through its financial institutions—they could also choose to exit at a market price since UTI would be listed. As FE reported on Monday, with the finance ministry looking at just a 10% divestment, 2% from each of the stakeholders, this robs T Rowe Price of the blocking rights its 26% stake gives it—to stop a chief being imposed, for instance—while leaving all control with the government. Whether or not T Rowe Price gets control of UTI, surely the interests of UTI’s investors would be best served if it is a board-run firm? That cannot happen as long as PSU institutions, controlled by the government, hold the majority stake.