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UTI AMC-PSUs-SEBI Saga: Is it a special case treatment of SEBI relenting with extension for stakeholders SBI, LIC and BoB?

At present SBI, LIC, BoB, each hold nearly 18.5 percent stake in UTI AMC besides having their own independent mutual fund houses.

December 07, 2019 / 01:51 PM IST

Securities and Exchange Board of India (SEBI), in an order dated December 6, 2019, revealed charging a show-cause notice on stakeholders of UTI Asset Management Company (AMC) - State Bank of India, Life Insurance Corporation, and Bank of Baroda on July 19, 2019, towards regulatory action.

The market regulator directed three public sector financial institutions -- LIC, SBI, and Bank of Baroda -- to dilute their stakes to below 10 percent in by December next year.

In the case of non-compliance with directions, the shareholding and voting rights of these entities in UTI AMC and UTI Trustee in excess of 9.99 percent and corporate benefits will be frozen till the time they comply with the orders.

The stakeholding of SBI, BoB, and LIC in UTI AMC is in contravention of an amendment to SEBI MF Regulations on March 13, 2018, requiring an asset management company (AMC) to be a sponsor and stakeholder holding 10 percent or more, of only one mutual fund, thereby reducing cross-holding in any other AMC at less than 10 percent.

For AMC companies holding more than one mutual fund in a one-year timeline was given to comply.


At present SBI, LIC, BoB, each hold nearly 18.5 percent stake in UTI AMC besides having their own independent mutual fund houses. Punjab National Bank also holds 18.5 percent stake in UTI AMC. However, it does not own a mutual fund house.

Subsequent to SEBI Regulations enforced on having multiple stakes in AMC, SBI, LIC, and BoB were expected to comply within a year by March 2019 which did not go through.

SBI, LIC and BoB defended their status saying divestment needed approval through Department of Investment and Public Asset Management (DIPAM), a government of India body.

'Not Satisfied with the replies', says the SEBI order although looking at facts and circumstances of the case, SEBI has now allowed timeline till December 31, 2020, for compliance by SBI, LIC, and BoB.


It's a curious case of a handful of PSU enterprises falling on the wrong side of regulatory compliance for the want of timely divestment in UTI AMC, another government entity.

This is of significance because, for long, government financial bodies have had cross-holdings in each other.

In mutual funds, insurance and development financial institution, cross-holdings by public sector enterprises in one another has been more pronounced in order to set up equity capital.

A foremost benchmark of SEBI Mutual Fund Regulations are avoidance of conflict of interest in organising and operating mutual fund operations. This is so since in asset management business, returns of schemes of one AMC are always competing with returns of schemes of another AMC and for getting investor's corpus.

“For best governance standards without interest conflicts in the asset management business, its imperative for each MF player to have one AMC and not duplicate,” quoted an ex- SEBI mutual fund department officer who is now an investor.

“What scrip one AMC may be buying in its long term value oriented scheme, another AMC may be selling in its sectoral equity scheme, such conflicts arise when there is holding in multiple AMCs,” added the ex SEBI officer.

With the creation of autonomous financial regulators towards setting governance norms and fair play, public sector players are now subject to the same rules and regulations that govern the entire sector.

In that line of equality for all MF players, SEBI came up with the aforementioned amendment in MF Regulations, implying that each MF player holds a controlling stake in only one mutual fund.


UTI Mutual Fund, originally founded as the country's first asset management company in 1964 has had SBI and LIC as its founding members.

Later, stakes were taken up by BoB and global asset manager Luxembourg-based T Rowe Price.

There has been a buzz for two years of divestment by them in UTI through an IPO process but it did not go through due to differences with T Rowe Price.

Meanwhile, Nippon AMC and HDFC successfully launched their IPOs. Else, UTI AMC would have been the first AMC to get listed on the exchanges.

Miffed with non-compliance, SEBI may have issued the recent show-cause notice on SBI, LIC and BoB on July 19, 2019, towards regulatory action that saw its closure with SEBI allowing extension by a year till end December 2020  for SBI, LIC and BoB to divest stake in UTI MF.

“It seems matters reached the echelons of Ministry of Finance towards a closure to the issue and it was ensured that SBI, BoB and LIC step out as stakeholders of UTI MF and end the conflict of their interest with their own MFs, the SBI MF, LIC MF and BoB MF,” said an industry source.

“It's an ironical case where the right arm of Government I.e. say ministry along with SBI, LIC, BoB was not acutely aware that left arm of Government I.e. say SEBI took a serious view of of regulatory non compliance. But the time extension for SBI, LIC and BoB has come when there are credible buzz that UTI is in throes of its IPO launch to mop up Rs 10,000 crore with these three entities divesting their stake,” the source added.

Why the delay?

Part of dilly-dallying on stake sale is partly because of the rift between UTI stakeholders and T Rowe Price that has been going on for the last six years, back when T Rowe Price wanted a professional CEO to be appointed instead of an IAS on deputation.

Leo Puri was appointed Chairman in 2013 completing a five-year term in August 2018. UTI MF is operating through interim Chairman Imtiyazur Rehman since then.

Industry experts said that if there is a delay in appointing full-time Chairman it will also delay the IPO process, stake sale of SBI, LIC and BoB which may again brush against regulatory extended deadlines.

Government authorities and PSU bodies need to understand that governance practices mean equal standard for all, whether public sector enterprise or corporate.

The investor community takes note of it all. SEBI held its ground on regulatory fairness by not exempting SBI, LIC and BoB from divestment, only extended the deadline.
Himadri Buch
first published: Dec 7, 2019 01:51 pm

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