By R Jagannathan
Why does the government want to own a mutual fund and let it go to seed by starving it of legitimate leadership for a year?
The answer, at least in the case of the UTI Mutual Fund, is manoeuvring by insiders in the finance ministry to push their own favourites — even close relatives.
The fund has been without a CEO ever since its previous boss, UK Sinha, was moved to Sebi, the market regulator, as chairman.
But that was a year ago. Since then, UTI Mutual Fund has been a headless chicken, and till recently Sebi did not allow it to launch new schemes because it did not have a boss.
And why does UTI not have a boss? It’s because Finance Minister Pranab Mukherjee’s powerful advisor, Omita Paul, is said to favour the candidature of her brother, Jitesh Khosla, as CEO of UTI.
The surprising thing is not that Paul wants her brother to head the fund, but that the finance ministry is willing to risk a prolonged leadership vacuum — even for a year — to finally push its favoured nominee.
In fact, just to get over Sebi’s refusal to let UTI launch new schemes without a CEO, 10 days ago the government nominated Imtaiyazur Rahman as acting CEO. Rahman was earlier part of a four-member ad hoc committee set up to run the mutual fund after Sinha left for Sebi.
So the current position is this: even after a year of running the UTI in a headless fashion, the finance ministry still thinks it can manage to push its nominee through by holding out for some more time and appointing a temporary CEO.
Normally, this kind of favouritism goes unnoticed in the public sector, but this time there is a fly in the ointment: UTI is not a pure public sector enterprise. In fact, it has a 26 percent strategic investor in global investment company T Rowe Price, which says that the head of a mutual fund cannot just be another bureaucrat.
T Rowe Price has not taken kindly to the finance ministry’s bullying and there has been talk of it exiting the UTI Mutual Fund if the ministry meddles too much.
And now, The Economic Times reports that the mutual fund’s hitherto mute public sector co-owners – Life Insurance Corporation, State Bank of India, Punjab National Bank and Bank of Baroda, who own 18.5 percent each – have also sent the finance ministry a warning about appointing Khosla as boss.
According the newspaper, which named no sources for this information, the public sector shareholders of UTI Mutual Fund have privately told the ministry that appointing someone who was not part of the initial short-list of nominees for the post of UTI CEO would end up raising governance issues at the fund.
In recent months, Right to Information Act queries have brought nothing but ignominy to the finance ministry. A Firstpost RTI to the PMO brought forth a letter of complaint written by former Sebi member KM Abraham alleging attempts by the ministry to influence cases being heard by Sebi (including Reliance and Sahara group cases). Another RTI query resulted in the Pranab-Chidambaram rift coming out into the open.
A public interest litigation (PIL) filed over the appointment of the Sebi chief was thrown out by the Supreme Court, but only because it did not frame the PIL as a constitutional issue. The PIL might still resurface, since a key element in it was the manner in which former Sebi chief CB Bhave was denied an extension and the current one appointed in his place.
What’s so special about the top job in a public sector fund like UTI Mutual Fund that ministry advisors are willing to wait for more than a year to secure it for their favoured nominees? One answer is the profile – which faceless bureaucrats crave. And the other aspect in money.
Bureaucrats on deputation to organisations like UTI Mutual Fund can sometimes manage to push up earnings by getting salary committees to benchmark their salaries with private fund managers.
UK Sinha, who was appointed UTI chief in 2006 on a salary of just around Rs 6 lakh, exited the fund with a salary of over Rs 3.6 crore.
No doubt, Jitesh Khosla hopes to inherit this kind of annual pay packet.