Smaller AMCs protest at Sebi decision

Sebi increases minimum cap requirement for an AMCs to Rs 50 cr

The Securities and Exchange Board of India’s bombshell in raising the minimum net worth criterion for mutual funds (MFs) has not gone well with the smaller ones.

On Thursday, Sebi’s board of directors approved a proposal (among many others) to raise the minimum capital requirement for an asset management company (AMC) from Rs 10 crore to Rs 50 crore. The sector was expecting a rise to only Rs 25 crore.

Fund houses which will bear the brunt include Quantum MF, Pinebridge, IDBI MF, BOI AXA, ING MF, Motilal Oswal MF, Principal, Sahara, Taurus, India Bulls and IIFL, among others.

According to Sebi chief U K Sinha, there are 19 companies with less than Rs 50 crore of capital. These have been given three years to scale up their capital to the required threshold.

“It’s a damaging move and we are awaiting the finer details. I fail to understand how I can not serious if I do not have the capital. This is not a right approach,” said the chief executive officer (CEO) of a small AMC which does not fit, as of now, to operate as one.

Of the 47 entities in the sector, three had zero assets as on end-December 2013, leaving 44 effectively, considering assets under management.

 

The bigger entities support the move, saying it will allow only serious players in the business. However, the smaller ones vigorously disagree. They are waiting for the fine print and are hopeful that the regulator will at least put two defining slabs. They say there should be one of Rs 25 crore for those with less than Rs 50,000 crore of assets; for those above, it should be Rs 50 crore as net worth requirement.

“If such slabs are given, the sector would be less hurt and players may look at increasing their capital. However, if Sebi sticks to what it has announced, there will be a lot of hue and cry,” said the CEO of a small fund house.

According to sector officials, the exit of small fish cannot be ruled out if the net worth requirement remains so stringent. “Promoters who might not be interested in pumping in capital will choose to surrender the licence and exit,” said an executive.

They added another decision, to have each Fund infuse at least Rs 50 lakh as seed capital into its own scheme, was not a bad idea. It would help the affected houses to increase their net worth as well.

Thursday’s decisions have reminded the sector of the decision C B Bhave took as chairman of Sebi in August 2009 by abolishing the entry load on equity schemes.

“The dust of entry load ban had almost settled in last half-a-decade. And, the sector has got used to this change. However, the net worth criteria has brought in trouble for a section,” said a chief marketing officer of one of the houses affected.

It is likely the blame-game between smaller and bigger, which never settles, could begin again. The smaller ones say changes aimed at weeding out ‘assumed non-serious players’ will prove detrimental for the sector. They note the US, where a little over 800 AMCs cater to a population only a fourth of India. “How can less than 50 players be a huge number for 1.2 billion people?,” asked one of the CEOs cited earlier.

All the top 10 fund houses, often targeted by small and mid-sized players for effecting regulatory changes such as these, are well capitalised. Reliance MF and UTI MF had the largest net worth as on March 31, 2013, at Rs 1,220 crore and Rs 1,046 crore, respectively. HDFC MF was at third place with Rs 702 crore and L&T MF at fourth position with Rs 648 crore.