JPC pulls up IDBI, SBI for the UTI mess

It said UTI’s promoters LIC, IDBI and SBI promoted their own mutual funds but continued to retain their presence on the UTI board leading to a ‘conflict of interest’. Blaming IDBI for showing ‘extreme irresponsibility’ on certain management issues of UTI, JPC has asked the financial institutions and other trustees — RBI, LIC and SBI — to divest their control from the country’s biggest mutual fund.

‘It is IDBI that is accountable for the omissions and commissions of UTI as an institution… IDBI should be divested of the trusteeship and control of UTI as well as powers given to it under UTI Act,’ JPC said in its draft report. UTI is currently facing a shortfall in some of the schemes and its corpus has been shrinking in the last one year.

‘RBI, whose job is of a regulator, should be divested of its responsibilities as a trustee of UTI,’ it added.

Though IDBI controlled UTI and had powers to ask for informations as per the provisions in UTI Act, the JPC said ‘IDBI exhibited extreme irresponsibility by not invoking these sections of UTI Act in the last 10 years’. The report further said that although IDBI started its own mutual fund, it continued to dominate the affairs of UTI despite the ‘obvious conflict of interest’.

Referring to the S. S. Tarapore panel report, the Committee criticised members of UTI’s board of trustees for ‘gross negligence’ and ‘violation’ of prudential norms to declare dividends from the fund’s reserves for four successive years, 1994-98, to the extent that the reserves became negative.

Pointing to UTI fiasco, the JPC recommended that suitable action should be taken against trustees of UTI for improper decision in distributing dividends out of reserves for four successive years.

Lambasting IDBI and other trustees for allowing UTI to invest in long-term projects, the report said participation of UTI in banking and term lending activities did not fit into its mutual fund functions as such investments invariably had long gestations while UTI needed liquid funds to finance redemptions and pay out in its various schemes.

The report quoted current UTI chairman’s deposition and said ‘over time UTI got into a mismatch problem. If it was a pure mutual fund, it would not have got into some of these (long-term) investments’.