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LIC, SBI, Bank of Baroda to reduce stake to below 10% in UTI AMC by Dec 2020

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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 conflicts of interest.

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 whole,” Sebi said.

“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.




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