Fixing UTI, finally! Sebi did well to reiterate sponsors can’t own two funds

Though it was during the UPA tenure—early 2011—that the government got into a spat with UTI’s board over trying to appoint its nominee as the head despite him having no financial background, the BJP government has not made any major headway in resolving the tangle. While the government had brought in US investor T Rowe Price—when US-64 had collapsed—in an attempt to professionalise it, that didn’t really happen and the government remained in control of the fund with SBI, Punjab National Bank, LIC and Bank of Baroda holding an 18.5% stake each in it. Indeed, though the board got into a tussle in 2011, it was the government that decided who would head it all along. When the BJP came to power, it tried to resolve the issue but at that point, SBI and LIC decided to make a bid for UTI as this would move their mutual funds up in the league tables. While SBI proposed a share swap, LIC offered to buy out all UTI’s investors including T Rowe Price. When this didn’t fly, an IPO solution was proposed. This would allow the three banks to exit and use the funds to shore up their balance sheets and allow the fund to be professionally run—T Rowe Price had made it clear it didn’t mind lowering its stake as long as UTI was a genuinely board-managed firm. What the finance ministry’s disinvestment department proposed, however, was a small IPO of, say, around 10% to discover the market price—each owner would divest a 2.5% stake—and a fuller divestment later. The problem with this, however, was that while it would ensure T Rowe Price lost its 26% shareholding, the government would still remain in control—and be free to, as in the past, foist its nominee on UTI. After the US-64 disaster, when T Rowe Price was brought and when the four PSUs were given a stake in UTI, the rules did not allow a sponsor to hold a significant stake in more than one AMC—the PSUs were, however, given a waiver, presumably on the assumption that, over a period of time, they would divest. In Thursday’s board meeting, Sebi decided that sponsors holding more than a 10% stake in AMCs would be given a reasonable time to exit one of them and conform to the original guidelines. Though there will be pressure on Sebi to relax the time-frame in which this has to be done, if it is allowed to stick to its proposal—the finance ministry’s role here is crucial—the government will finally come through on its plan to free UTI and allow it to become a board-run company. Given that it was a BJP government that initially came up with the plan, it is only fitting that a BJP government complete the process.