Blame game starts in MF industry as Sebi tweaks norms for custodians

Small and mid-sized players say it will benefit large players which have banks as sponsors

With today's Sebi various approvals to pending proposals in mutual fund industry, the blame game has once started among the industry players.

Among the four announcements pertaining to the fund management sector, what has irked the small and mid-sized players is Sebi's decision on custodians.

According to them SRO for distributor and opening debt segment of stock exchanges, among others were being discussed in public domain. But they are taken aback by the Sebi Board's allowance to mutual funds to appoint custodians (belonging to the same group) with various conditions.

"This has come as a surprise. It was never discussed earlier," said CEO of a small-sized AMC. They said that only bigger players in the sector and foreign entities will be benefitted.

According to Sebi's statement custodians in which the sponsor of a mutual fund or its associates are holding 50% or more of the voting rights of the share capital of the custodian, would be allowed to act as custodian. However, this will be subject to conditions as follows:

(a) The sponsor should have net worth of at least Rs 20,000 crore at all points of time.

(b) 50% or more of the directors of the custodian shall be those who do not represent the interests of the sponsor or its associates.

(c) Neither the custodian nor the asset management company of a mutual fund shall be a subsidiary of each other.

(d) No person shall be a director of both the custodian and the asset management company of a mutual fund.

(e) The custodian and the asset management company of a mutual fund shall sign an undertaking that they will act independently of each other in their dealings with the schemes.

India's all top fund houses have large banks as their sponsors. "Maintaining a net worth of Rs 20,000 crore at any given point of time is not a big deal for large players as they have strong sponsors' backing," said another executive.

Presently, mutual funds are not allowed to appoint a custodian belonging to the same group, if the sponsor of the mutual fund or its associates hold 50% or more of the voting rights of the share capital of such a custodian or where 50% or more of the directors of the custodian represent the interests of the sponsor or its associates.