The Securities and Exchange Board of India (Sebi) on Friday imposed a penalty of Rs 10 lakh each on Life Insurance Corporation of India (LIC), State Bank of India (SBI) and Bank of Baroda (BoB) for failing to reduce their stake in UTI Mutual Fund (MF) below 10 per cent within the stipulated time.
The regulator passed separate orders against the three state-owned firms for non-compliance of Regulation 7B of Sebi MF Regulations. Under the said regulation, no sponsor of an MF is allowed to hold more than 10 per cent of any other mutual fund or a trustee firm.
LIC, SBI and BoB are the sponsors of LIC MF, SBI MF and Baroda MF. At the same time, they hold over 18 per cent stake in both UTI MF and UTI Trustee Company. According to the order, all the three entities were to pare their stake below 10 per cent in UTI MF by March 2019.
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“I am of the view that the said penalty is commensurate with the default committed,” the Sebi adjudicating officer has said in the order. LIC, SBI and BoB in their reply to Sebi’s notice had said they were unable to bring down the shareholding within the specified time period because of procedural delays. These include taking approval of the government department for divesting their holdings and difficulties in arriving at a consensus over quantum of disinvestment with major shareholder US-based T Rowe Price.
The three firms have told Sebi that the initial public offering (IPO) of UTI MF will open in the first week of September. Through the IPO, the three companies will divest their excess holdings.
Sebi in June had given the green-light for the UTI MF IPO. The fund house was looking to launch the share sale in August. Sources said the issue faced delays as the Covid-19 pandemic created difficulties in conducting roadshows to get a sense of investor demand.
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With respect to their holding in UTI Trustee, the three firms have told Sebi that they have entered into a share purchase agreement to bring down their stake. Interestingly, a Sebi whole-time member had issued an order in this same matter in December 2019 giving the three firms time till December 2020 to bring down stake. However, Sebi has said the order passed by the WTM and the one passed on Friday were based on two separate proceedings and do “not have bearing on one another”.
