| Winds of change
New Delhi, Nov. 26: The government hopes to complete the process of replacing existing promoters of Unit Trust of India Mutual Fund, earlier known as Unit Trust of India II, by March.
A top finance ministry official said Oriental Bank of Commerce (OBC), Bank of India (BoI) and Corporation Bank would replace the existing promoters.
The mutual fund is currently operated by an asset management company (AMC), which was floated by State Bank of India (SBI) along with Life Insurance Corporation (LIC), Bank of Baroda (BoB) and Punjab National Bank (PNB) with a capital infusion of Rs 2.5 crore each.
The move to change sponsors stems from a recommendation of the joint parliamentary committee which investigated the stock market scam and pointed out that the existing promoters have a conflict of interest with UTI since they operate their own AMCs too.
“There is a ‘conflict of interest’ since the sponsors of UTI II have their own mutual funds and so the committee recommends that the institutions chosen to sponsor UTI should be those that have not sponsored their own mutual funds,” the report stated.
The government had initiated talks with several PSU banks in a bid to get them to agree to take on the job being performed by the existing sponsors. After informal talks, these three banks were identified as potential sponsors.
“We have held the first round of official discussion with the concerned parties now and would hold several more next month since these three banks does not have an asset management company,” the official told The Telegraph. “The process has to be completed by the end of this financial year as per Sebi’s order.”
He said that the Securities and Exchange Board of India (Sebi) had also, recently, held a meeting with the government on implementation of the report.
“Sebi also had observed that SBI, PNB and BoB has their own AMC, which results in conflict of interest that comes in the way of maximisation of the UTI investors’ wealth,” he added.
In January, the government had transferred management control of Unit Trust of India II (UTI-II), formed after bifurcating Unit Trust of India, to the AMC. UTI-II is composed of net asset value (NAV) schemes and has about 50 per cent of the fund industry’s exposure to the equity market.
The official also said that the insurance regulatory body, IRDA, has also objected to Life Insurance Corporation’s equity holding in mutual funds as it is the largest investor, which results in a conflict of interest.
“Investment in funds means playing with the life insurance policyholders money, which is risky,” he said. “IRDA has also observed that investment into UTI is a dead investment and consequently cannot be beneficial for policy holders in an era of falling interest rates,” said the official.
Last year in August, the government had repealed the UTI Act of 1964 to bifurcate the fund into two parts — UTI I and UTI II — and had also provided a Rs-14,500 crore bailout package to meet possible liabilities from assured fund schemes worth Rs 31,000 crore of UTI I.