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With the Securities and Exchange Board of India's (Sebi) chief U K Sinha setting the ball rolling for revisiting the ownership structure of India's fifth largest fund house UTI Mutual Fund, he has found many supporters in the industry.
According to the regulations, one entity should not sponsor more than one fund house. However, in UTI Mutual Fund's case, the norms were tweaked as a part of a quick-fix solution for a short term.
However, it's been over a decade now since UTI Mutual Fund got several sponsors as a short-term measure to pull the institution out of the distress.
"Under the Sebi regulations, in the spirit of the regulation there is, perhaps, a need to revisit this in the simple way that this was supposed to be a small short-term measure but it has been going on for more than a decade. So, I would feel that the shareholder, senior management, the board of directors, the trustees should also spend some time looking into those matters," Sinha recently remarked at the 50th anniversary of UTI.
India's four largest state-owned financial institutions - Life Corporation of India (LIC), State Bank of India (SBI), Bank of Baroda (BoB) and Punjab National Bank (PNB) - became equal stake holder in the fund-house with each agreeing to buy 25 per cent. Later, in 2010, US-based T Rowe Price became the largest stakeholder after it picked a 26 per cent stake pushing the others' holding to 18.5 per cent each.
"More the sponsors, more the trouble for the fund house. It's not only flouting with the set regulations, but also affects the functioning and sentiments at the organisation. UTI has paid the price for it," said a top official at UTI's peer groups in the industry.
The question is, how to do it.
Edward C Bernard, vice-chairman of T Rowe Price, had told Business Standard at the time of signing the deal that he hoped to increase the stake over time. "I can envision ourselves getting to something that's near 50:50. Whether that's 49 or 51 per cent depends on how the rules work," Bernard had said.
It's already four years since T Rowe got in and it continues to remain at 26 per cent.
The government, indirectly, controls UTI Mutual Fund through its four institutions. "Either the government should let T Rowe Price take a controlling stake in the company or the holdings of the LIC, BoB, SBI and PNB be taken over by some other entities which do not have a fund house," suggests a CEO.
It sounds easy but given the alternatives available, it is unlikely, officials add. According to them, the government is less likely to allow T Rowe Price to have a majority stake. And, when it comes to privatisation or selling of stakes by existing public-sector institutions, there are hardly any strong and well-capitalised entity which could replace them.
"UTI would not have been headless for uncomfortable number of years, had there been one single sponsor. Even today, despite having the largest stake in the company, T Rowe Price (the only shareholder with a veto power) has not been able to add the anticipated value to the institution," said the CEO of mid-sized fund house.
Industry sources said that talks had been on for the past few years to bring back UTI in the same regulation framework. "It's good that Sebi has, at least, articulated it in a public forum. Government organisations can't be let to have such privilege to flout with the norms for so long," said a top executive.
It's worth noting that all the existing public-sector institutions have their own fund houses in operations in the country. It also prompts conflict of interest as all are competing with each other. Former SBI chairman O P Bhatt had said that SBI through its associate SBI Mutual Fund is also a competitor to UTI Mutual Fund.
According to the regulations, one entity should not sponsor more than one fund house. However, in UTI Mutual Fund's case, the norms were tweaked as a part of a quick-fix solution for a short term.
However, it's been over a decade now since UTI Mutual Fund got several sponsors as a short-term measure to pull the institution out of the distress.
"Under the Sebi regulations, in the spirit of the regulation there is, perhaps, a need to revisit this in the simple way that this was supposed to be a small short-term measure but it has been going on for more than a decade. So, I would feel that the shareholder, senior management, the board of directors, the trustees should also spend some time looking into those matters," Sinha recently remarked at the 50th anniversary of UTI.
India's four largest state-owned financial institutions - Life Corporation of India (LIC), State Bank of India (SBI), Bank of Baroda (BoB) and Punjab National Bank (PNB) - became equal stake holder in the fund-house with each agreeing to buy 25 per cent. Later, in 2010, US-based T Rowe Price became the largest stakeholder after it picked a 26 per cent stake pushing the others' holding to 18.5 per cent each.
"More the sponsors, more the trouble for the fund house. It's not only flouting with the set regulations, but also affects the functioning and sentiments at the organisation. UTI has paid the price for it," said a top official at UTI's peer groups in the industry.
The question is, how to do it.
Edward C Bernard, vice-chairman of T Rowe Price, had told Business Standard at the time of signing the deal that he hoped to increase the stake over time. "I can envision ourselves getting to something that's near 50:50. Whether that's 49 or 51 per cent depends on how the rules work," Bernard had said.
It's already four years since T Rowe got in and it continues to remain at 26 per cent.
The government, indirectly, controls UTI Mutual Fund through its four institutions. "Either the government should let T Rowe Price take a controlling stake in the company or the holdings of the LIC, BoB, SBI and PNB be taken over by some other entities which do not have a fund house," suggests a CEO.
It sounds easy but given the alternatives available, it is unlikely, officials add. According to them, the government is less likely to allow T Rowe Price to have a majority stake. And, when it comes to privatisation or selling of stakes by existing public-sector institutions, there are hardly any strong and well-capitalised entity which could replace them.
"UTI would not have been headless for uncomfortable number of years, had there been one single sponsor. Even today, despite having the largest stake in the company, T Rowe Price (the only shareholder with a veto power) has not been able to add the anticipated value to the institution," said the CEO of mid-sized fund house.
Industry sources said that talks had been on for the past few years to bring back UTI in the same regulation framework. "It's good that Sebi has, at least, articulated it in a public forum. Government organisations can't be let to have such privilege to flout with the norms for so long," said a top executive.
It's worth noting that all the existing public-sector institutions have their own fund houses in operations in the country. It also prompts conflict of interest as all are competing with each other. Former SBI chairman O P Bhatt had said that SBI through its associate SBI Mutual Fund is also a competitor to UTI Mutual Fund.
