INSUBCONTINENT EXCLUSIVE:
MUMBAI: The Securities and Exchange Board of India (Sebi) directed the domestic shareholders of UTI Asset Management Co (AMC) — Life
Insurance Corporation, State Bank of India and Bank of Baroda — to bring down their stakes below 10% forthwith to comply with crossholding
rules, saying they had been dragging their feet.
The regulator also wants their nominees removed from the boards of UTI AMC and UTI Trustee
Co before December 31, 2020
If they don’t comply, the shareholding and voting rights of the three in excess of 9.99% would be frozen, it said
The regulator has asked the three shareholders to submit a compliance report within one month
Sebi said it may initiate adjudication proceedings against them for not following the rules
LIC, SBI and BoB didn’t respond to queries.
Sebi had introduced crossholding limits in mutual funds in March 2018 to eliminate potential
It mandated that if a shareholder has at least a 10% interest in a mutual fund, it cannot hold a similar-sized stake in another fund house
and would also have to give up its board positions.
“It is noted that despite the expiry of over 20 months from the date of amendment of
the regulations, the noticees (LIC, SBI, BoB) are yet to achieve compliance with these requirements,” Sebi wholetime member G Mahalingam
said in his order, which was posted on the website on Friday.
“While the noticees have shown that they have initiated some steps to dilute
their stake in UTI AMC, the substantial compliance with Regulation 7B still remains pending,” the order said.
Compliance with rule was
critical, the regulator said.
“This conflict of interest could affect the functioning and performance of the mutual fund industry as a
“Thus, 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.”
Sebi said the three shareholders have not indicated any
specific road map or timeline for diluting their holding.
As per UTI AMC shareholder agreement of November 7, 2009, those holding more than
10% stake are entitled to nominate, appoint or recommend directors in proportion to their holding
UTI’s four domestic shareholders — LIC, SBI, Punjab National Bank (PNB) and BoB — hold an 18.5% stake each
All except PNB have their own AMCs
US asset manager T Rowe Price holds the remaining 26% stake.
“There has been considerable delay on the part of the noticees (LIC, SBI and
BoB) in putting forth a concrete plan for divestment to DIPAM (Department of Investment and Public Asset management) and seeking its
approval thereon,” Mahalingam said
“While Regulation 7B was inserted in 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.”
All three shareholders had told Sebi they need
prior approval of the government to transfer their shares in UTI AMC, which they got in two stages this year — initial approval on April 9
and a revised one on September 12.
“Even after the receipt of the initial approval, I note that the compliance got further delayed for
various reasons including lack of consensus amongst the major shareholders for the divestment plan,” he said
“On a perusal of the correspondence available on records, I feel that a more proactive approach from the noticees would have certainly
expedited the compliance.”
In April, DIPAM had approved divestment of stake in UTI AMC by shareholders in two phases — 25% offloading of
stake by all institutional shareholders on a prorata basis and 10.92% divestment in the second phase by way of a follow-on public offer
(FPO).
T Rowe Price didn’t agree with this and a revised divestment plan providing for stake reduction of 8.25% stake each by LIC, SBI and
BoB and 3% each by T Rowe Price and PNB at one go by way of IPO was approved by DIPAM.