The Hindu Business Line : AMC to manage UTI-II may get derailed

THE Finance Ministry may be forced to review its decision of setting up an asset management company with four sponsors - - Life Insurance Corporation (LIC), State Bank of India (SBI), Bank of Baroda (BoB) and Punjab National Bank (PNB) - - to manage UTI II, if the Government decides to implement the recommendations of the Joint Parliamentary Committee.

The JPC has made it clear that that the sponsors of UTI II should not have their own mutual fund, citing conflict of interest. Only last month, the Reserve Bank of India (RBI) gave its nod to the four banks and institutions - - which independently manage their own mutual fund - - to hold stake in UTI II comprising of all the net asset value based schemes. Clearance from the Securities and Exchange Board of India (SEBI) would also be required for the AMC to become functional.

Each of the four promoters have chipped in Rs 2.5 crore each for the paid up capital of Rs 10 crore for the new AMC.

In case the Government accepts JPC's recommendations, it may have to scout for new sponsors for UTI II. "The Government must spell out in detail both through legislation and through policy guidelines as to how it proposes to insulate UTI-II from the inherent conflict of interest as regards these institutions," the report has said.

Both LIC and SBI have had their nominees on the Board of Trustees of UTI. "The overwhelming representation of IDBI on the board of UTI made it difficult for UTI to act as a pure mutual fund and made it participate in such lending activities that resulted in huge NPAs and low returns and liquidity problems," the report said.

The committee has recommended that the schemes in UTI-I should also be managed by independent fund manager, preferably from UTI-II for a fee as the Government does not have the expertise to take quick commercial decisions.

UTI I comprising US 64 and all the assured return schemes is now being managed by the Government which has taken on the liabilities. "The management fee can be worked out keeping in mind that the Government has already provided a huge bailout to the UTI," the JPC report said.

The committee also recommended a suitable system being devised so that equity holdings of UTI-I and UTI-II are divested together so that maximum benefit can accrue to investors in these funds.

UTI can derive optimum value for equity holdings across schemes that constitute significant portion of the controlling state of a company by selling them through strategic or private placement, it said.

Transparent appointments

THE JPC has made out a case for transparency in the appointment process of Chairman and managers of UTI II, even as the Government has decided to put Mr M. Damodaran in charge of the new entity in the near term.

It has said that even if an official of the public sector is selected, in no case should a deputation from the parent organisation be allowed. This is imperative because under no circumstamces should there be a public perception that the mutual fund schemes of UTI II are subject to guarantee by the Government and would be bailed out in case of losses, the committee has said.

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