The directions to the UTI Asset Management Company’s board is interesting because, under Sebi rules, anyone that already runs a mutual fund — a ‘sponsor’ in jargon — cannot be a part of another mutual fund. While a special carve-out was given to the four PSUs — LIC, SBI, PNB and Bank of Baroda — market regulator Sebi had come out with guidelines “on avoiding conflict of interest between UTI MF and the sponsors” in 2003. US investment firm T Rowe Price has cited these guidelines in its complaint against the PSU sponsors made to both Sebi and the finance ministry.

The guidelines said sponsors “should not nominate any employee working with them on the Board of the AMC and the trustee company or any committee of the UTI Mutual Fund”.

While this meant the nominees of LIC/SBI/PNB/BoB had to be genuinely independent directors, the PSUs got around the spirit of the guidelines by nominating retired employees. Sebi went on to say “a Chinese wall relationship should be created between the persons dealing with the day-to-day affairs of the AMC and the sponsors”.

T Rowe Price’s letter says LIC/SBI letters to the AMC’s board amounts to interfering with the running of the AMC and violates the Chinese-wall rules specified by Sebi. It also cites March 2017 Sebi guidelines that says the sponsors need to lower their individual stakes in UTI to less than 10% — this rule needs to be complied with by March 2019. While LIC has made attempts to take control of UTI AMC in the past, T Rowe Price’s letter says, this is the latest attempt by using its nominee directors on the UTI AMC board.

Within a few days of receiving this letter, the finance ministry responded by forwarding the letter to Sebi asking it to examine the matter and take “appropriate” action while keeping the ministry in the loop.