The Securities and Exchange Board of India (Sebi) on Friday gave time till December 2020 to Life Insurance Corporation of India (LIC), State Bank of India (SBI), and Bank of Baroda (BoB) to bring down their shareholding in UTI Mutual Fund (MF) to below 10 per cent. The market regulator said non-compliance would result in the freezing of their voting rights and excess shareholding. Sebi has also ordered a change in the board structure at UTI MF.
The Sebi order said the three public sector undertakings (PSUs) had failed to comply with the cross-shareholding norms even after 20 months.
The order comes at a time when UTI MF has set the ball rolling on its initial public offering (IPO). On Wednesday, SBI had announced that it had approved disinvestment of an 8.25 per cent stake in UTI MF. LIC and BoB, too, are expected to offload similar stakes via the IPO.
Currently, LIC, SBI, and BoB hold an 18.24 per cent stake each in UTI MF. Separately, the three firms are sponsors of SBI MF, LIC MF, and Baroda MF. Under Regulation 7B of the Sebi MF Regulations, notified in March 2018, “no sponsor of a mutual fund, its associate or group company including the asset management company of the fund, through the schemes of the mutual fund or otherwise, individually or collectively, directly or indirectly, has 10 per cent or more of the shareholding or voting rights in the asset management company or the trustee company of any other mutual fund; representation on the board of the asset management company or the trustee company of any other mutual fund.”
In a letter dated March 20, the three PSUs wrote to Sebi, explaining reasons for non-compliance.
“Not satisfied with the replies,” Sebi issued show-cause notices in July threatening action.
In August, Dinesh Khara, MD, SBI, P S Jayakumar, MD & CEO, BoB, and A K Anand, ED-investments, LIC, attended personal hearings before Sebi, spelling out issues with regard to meeting Regulation 7B.
Among the reasons were disagreements between the shareholders, particularly US-based T Rowe Price, over bringing down the shareholding on a pro-rata basis. T Rowe holds 26 per cent in UTI MF, and Punjab National Bank owns 18.24 per cent. However, the two are not required to dilute as they are not sponsors in another fund house. Also, lack of approvals and clarity from the government’s disinvestment department (Dipam) also led to the delay, they said in their submissions. The three firms told Sebi that the UTI MF’s IPO plan has been approved by Dipam in September.
Sebi, however, rapped the three shareholders (noticees) for delaying the IPO process.
“While Regulation 7B was inserted in the MF Regulations on March 13, 2018, providing one year time-limit for its compliance, concurrence for divesting stakes in UTI AMC was sought by the noticees from Dipam only in January 2019… I feel that a more proactive approach from the noticees would have certainly expedited the compliance,” G Mahalingam, whole-time member, Sebi, wrote in the order.
The Sebi order said compliance of cross-shareholding norms was imperative. “Implementation of Regulation 7B is critical to the removal of such potential conflict of interest for improving the overall functioning of the mutual fund industry and to foster the interest of investors,” it said.