US-based T Rowe Price which holds 26 per cent stake in UTI AMC recently moved the Bombay High Court for reappointment of Leo Puri as MD and dilution of stake by four Indian public sector sponsors of the AMC. In an interview with The Indian Express, Leo Puri, who earlier made his mark in McKinsey and Warburg Pincus, spoke about the issues before the UTI group which manages assets worth over Rs 3.74 lakh crore.
Did the four Indian sponsors (LIC, SBI, PNB and BoB) support UTI in expanding its business?
Our sponsors have done very little in that regard as they run their own AMCs — and that is the central issue. SBI has no interest in UTI as it sells its own fund at its branches; PNB and Bank of Baroda have their own mutual funds, as does LIC. The point is they are really not interested in UTI, they are not original promoters. They were temporary custodians brought in by the government. They didn’t create this institution and they have no role in building it. My sponsors don’t give access to distribution but they hold my equity. They insist on holding my equity while doing absolutely nothing for us. We have had no strategic freedom. They are going to get a bonanza if we list today, and get 10 times their money — much more than the RoEs (return on equities) they generate on their own businesses.
Has TRP asked co-sponsors to reduce their stake?
Sebi has passed Regulation 7B which says all sponsors who sponsor an AMC are not allowed to own over 10 per cent in another AMC. They are not allowed to have anyone on the board. They should have no role in management. This must be completed by March 2019. By this time, the existing sponsors are required to bring their stake down. This is the genesis of the conflict of interest.
Will you remain as CEO if TRP gets a favourable verdict?
You can’t function as a CEO with a divided board and unclear mandate. I won’t be a CEO or stop-gap CEO without the unanimous support from all stakeholders. I have made it clear that I wish to leave office on the day my terms ends, which is August 13. I have made it very clear that I am not seeking an extension. All the relevant stakeholders are aware of my decision. The institution is in very strong financial health, the team and management are strong and united at this time, and the institution will continue to do well. I am also confident that stakeholders will quickly resolve the issue and move ahead quickly.
What’s the road ahead for UTI now? You were pushing for IPO and an independent board…
I can’t exactly predict the change that will happen, but my personal view on where the solution lies is clear for some time now—there is a fair amount of consensus that the right solution for UTI is to become a listed company. It needs to be managed by an independent board, with an independent chairman of public repute. This model will position it for future success and it will improve its governance. It’s a solution where everybody will win. There won’t be any losers.
Did you push for compliance of Sebi norms especially in the matter of adhering to the Sebi norms on dilution of stake below 10 per cent?
It’s my duty as CEO to make sure that I’ve been a compliant institution. As far as I’m concerned, they (four sponsors) have to comply with this. It doesn’t matter who the shareholder is… anybody who is not compliant has to provide an explanation to the company. The company is responsible for compliance… not the shareholders.
Did the trustees want AMC to align stake as per the Sebi regulations?
The general principle is that any AMC will comply with the trustees’ directions, which are intended to comply with mutual fund regulations. I think our trustees have been very honourable, principled and have taken a professional view of their reasonability to essentially ensure that UTI AMC should remain compliant, and they have acted keeping that objective in mind.
Bank-sponsored AMCs claim they have grown faster than UTI. How do you explain this?
We have grown slower than bank-sponsored AMCs… this has been UTI’s challenge for the last 15 years. There are several factors here. One is a structural shift where five bank-owned AMCs, thanks to their captive distribution and strength, have gained a 12-15 per cent market share over the last six or seven years. They push sales through their branch network. Besides, they also have corporate relationship and they have leverage since they are a lender to them. We have argued this should be regulated. In most countries, you cannot sell your own products beyond a point in your own branches. In FY10, they had 40 per cent of equity, which had risen to 55 per cent in FY17, because they own the distribution. If we look at UTI’s performance on growth in the non-bank AMC segment, we have done well, if not better, as the market.
There were allegations from some quarters that UTI MF underperformed under your leadership. What’s the reality?
It’s not true. We have grown our assets under management at 21 per cent CAGR for four years which is now around Rs 1.62 lakh crore. Our group assets under management have grown at 33 per cent… this include mutual funds, pension funds and overseas assets. We are very strong company that has total consolidated group assets of Rs 3.74 lakh crore. We expect a profit in the range of Rs 500 crore this year as against Rs 401.7 crore in fiscal March 2018 and we have maintained industry-leading margins during the period. On a consolidated basis, we have a net profit growth of 18 per cent, which is in line with others like HDFC AMC which has just listed. We maintain the second-highest margins in industry, behind only HDFC. There was no CEO for two-and-a-half years before I joined. We have created and stabilised a management team, built healthy balance sheet and maintained industry-leading margins and profit growth.