Mumbai: The Securities and Exchange Board of India (Sebi) on Friday said Life Insurance Corp. of India (LIC), State Bank of India (SBI) and Bank of Baroda (BoB) must reduce their stakes in UTI Asset Management Co. Ltd by December 2020.
If they continue to be in violation of the order after the deadline, Sebi will freeze the lenders’ voting rights. While the three public sector financial institutions hold 18.24% each the firm, Sebi’s cross holding norms for mutual funds says the sponsor of one AMC cannot hold more than 10% in another.
Under Section 7B of the Sebi (Mutual Funds) (Amendment) Regulation, 2018, the market regulator had mandated all mutual funds to comply with the norms by March 2019.
The three entities, who have their own MF businesses—LIC Mutual Fund, SBI Mutual Fund and Bank of Baroda Mutual Fund—are in violation of the Sebi norms with their stakes in UTI AMC.
In their submissions before the Sebi the lenders said the delay in reducing their stakes in UTI AMC was due to the lack of approvals from the government. The lenders also said the divestment of the excess stakes will happen in two phases—a 25% divestment of the stake by all institutional shareholders on pro-rata basis by way of an initial public offering (IPO) and 10.92% divestment in the second phase through a follow-on public offer.
In the first phase the three lenders will offload 8.25%, each, while T Rowe Price and Punjab National Bank will sell their 3% stakes, each. T Rowe Price is a majority shareholder with a 26% stake in UTI AMC, while PNB holds 18.24%.
T Rowe Price, however, had not agreed to the IPO plan, raising concerns in July. Subsequently, meetings of all shareholders were held to reach a consensus and the Department of Investment and Public Asset Management approved the listing plan on 12 September.
“It is noted that despite the expiry of over 20 months from the date of amendment of the Regulations, the noticees (public lenders) are yet to achieve compliance with these requirements. 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. Considering the facts and circumstances, I am of the view that a direction granting a reasonable time limit for compliance would be in the interest of all stakeholders," said G. Mahalingam, whole time member, Sebi, in his order.
The SBI board on Wednesday approved a proposal to sell an 8.25% stake in UTI AMC.
The public sector lenders will reduce their stakes through UTI’s listing. Citigroup Inc. and ICICI Securities Ltd are the advisers for the planned IPO of UTI AMC, which is expected to mop up over ₹2,600 crore.