The board of directors of UTI Asset Management, the country’s oldest fund house, may be restructured with some independent directors giving way to nominees of government shareholders.
According to people familiar with the developments, the four public sector shareholders, who control 74 per cent of the company between them, have given feelers to some independent directors asking for their resignations.
The move came after the finance ministry asked Punjab National Bank, State Bank of India, LIC and Bank of Baroda to depute officials who would represent them on the reconstituted board of UTI MF, an official of one of the shareholders said.
In a unique situation, while individually they hold less than T Rowe (26 per cent), the public sector cousins hold 18.5 per cent each and are acting in concert at the behest of the government.
The ministry has been pushing the candidature of a civil servant for the post of chairman and managing director. However, the present board, populated by nominees of foreign shareholders and independent directors, is in favour of an industry professional. Sachit Jain, director, UTI AMC, said the board had submitted the shortlist of candidates to the shareholders. “The shareholders have interviewed these candidates. They can either choose one among them or choose someone who is not on the list,” he added.
“Under the present conditions, it is difficult for the current board to continue functioning. Ideally, the new board should have representation from all the shareholders,” the official quoted earlier added.
Sarah Cadden, spokesperson for T Rowe Price, said, “At this time, we have no comments for inclusion in your article,” in response to an email seeking comments. An email seeking comments sent to the spokesperson of UTI AMC remained unanswered.
Jain said, “Shareholders have the right to decide who they put on the board. It’s the prerogative of PSU shareholders to appoint their nominees if they so wish.”
Jain added he had not been asked to resign.
The UTI board originally had five independent directors. Of those, Anita Ramachandran, who was acting chairman, in the absence of a full-time chairman, resigned after the board meet on Thursday. Prithvi Haldea had resigned last month.
"The new chairman will not be comfortable with the old members (of the board) due to all the controversies," said an official of UTI MF on condition of anonymity. "So while the board has not yet decided anything concrete on the future of the independent members, it is believed they will not be here for long," he explained, adding that Thursday's board meet started quite late due to the time difference between the US and India as T Rowe Price representatives were participating via video conference.
After this, the board has two representatives from T Rowe Price -- James Sellers Riepe and Flemming Madsen. P R Khanna, Pradeep Gupta and Jain are other directors.
Sources at the AMC said Ramachandran was told to quit as she did not support the candidature of Jitesh Khosla, who the government wanted to bring in as chairman. Incidentally, Thursday's board meeting, which continued till late in the night, deliberated on routine issues like marketing budgets apart from going through some presentations on business growth and approvals of expenses.
Dhirendra Kumar, CEO, Value Research, said there was an inherent conflict of interest if one of the PSU shareholders appointed nominees on the board. “The idea of having a sponsor is that he should have a dominant ownership in the company. Today, we have a funny situation in UTI where none of the five shareholders have dominant ownership. Despite having five large institutions as owner, the company is an orphan.”
One way out of the situation would be for the PSU shareholders to divest more stake in favour of T Rowe Price, Kumar said. “Otherwise, one of the PSU sponsors, say SBI, should take over and merge it with their own mutual fund. The present situation is tricky as without a dominant owner, there is no one to take responsibility in the event of a crisis,” he added.
Since the inception of UTI AMC, shareholders like SBI, LIC and BoB did not have a representative in the board. This was because each of them sponsored their own mutual funds, creating a conflict of interest.
In 2003, when the erstwhile Unit Trust of India was bifurcated, NAV-based schemes were shifted to UTI Asset Management. Four public sector institutions picked 25 per cent each with the understanding they would dilute stake in favour of a private investor and eventually transfer control to the private entity.
A Joint Parliamentary Committee set up to probe the UTI US64 debacle had recommended: ‘‘If an official from the public sector is selected, in no case should deputation from the parent organisation be allowed and the person chosen should be asked to sever all connections with the previous employer.’’ The committee felt it was necessary because "under no circumstance should there be a public perception that the mutual fund schemes of UTI are subject to guarantee by the government and will be bailed out in case of losses".
The official suggested there was a change of mind and the government wanted its representative on the board and asked Sebi to treat it as an exception.
The latest moves suggest the recommendation is all but forgotten, if not dumped -- it not only wants an IAS officer as chief, but also wants PSU people in its board.
According to another industry source, there is a general feeling that though UTI MF has traditionally been headed by an IAS officer, times have changed a lot since U K Sinha took over as chairman of the fund house in 2005.
"The market is a lot more competitive now and an IAS officer is not looked upon as the best bet," said a person familiar with the issue. "The person at the helm should be well aware of the business intricacies and should not be the 'trial and error' type. There is cut-throat competition and an industry insider is a must," he said.
