The Hindu Business Line : More political than strategic

A DECISION ON the sale consideration for the transfer of the Government's original stake in the UTI Asset Management Company to its current sponsors marks the final step in the restructuring of the Unit Trust of India that began a few years ago with the severance of the Government's direct link with the mutual fund. The event itself will not have any impact on the day-to-day functioning of the fund, as it has after all been functioning as an autonomous body for the last three years. But the decision appears to have in it little of strategy and more of politics. There seems to be an anxiousness to show that the Government's occupation of the commanding heights of the financial services industry has not changed. Hence, the decision to vest its stake equally with the four sponsors — LIC, Bank of Baroda, State Bank of India and Punjab National Bank.

In the process, the Government has opened itself to the charge that it has settled for a lower price tag. Had it offered the stake to a single sponsor in a bidding process open to other fund management companies, it would have surely secured a far higher price. From the perspective of investors, too, a single sponsor would have been a more appropriate structure and paved the way for a cogent approach to investment management. Three of the sponsors have a modest presence in the mutual funds business. If the Government had to decide solely on the basis of what would be wholly in the interest of investors, vesting the ownership stake with the SBI would have been the best option. The SBI's mutual fund arm has emerged as one of the superior performers over the past three years. But its joint venture with Societe Generale of France for the asset management business could have proved a stumbling block given the political compulsions of the Government. The restrictions placed on ownership changes appear to be unfair to the sponsors. Perhaps, the idea is that should the political environment become more conducive, the government of the day can usher in the changes.

A chance has been missed to create an ownership structure in which UTI Mutual could have emerged a cost leader in the asset management business. The UTI could have been structured as a not-for-profit organisation. Such a fund is a must in the Indian context as the fee structure has settled at higher levels for retail investors. Only a fund that is focused on delivering returns even as it hammers down costs can make a difference in the present structure of the mutual fund industry, which gives the impression of having an informal arrangement on fees and costs among the players. The benefits that could flow from such an arrangement will create a sizeable surplus for investors at the macro level and would have outweighed the Rs 1,237-crore price the Government has now pocketed. Indeed, the SEBI Chairman, Mr M. Damodaran, had suggested such a structure when he was at the helm at UTI Mutual, but was, unfortunately, ignored.

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