Sebi on Thursday concluded the ruling process against state-owned LIC for alleged breaches of mutual fund norms.
The case involved an insurance company’s stake in an IDBI mutual fund.
In a 12-page order, Sebi said some of the alleged irregularities by LIC should be seen in the context of LIC’s efforts to complete the merger of IDBI Mutual Fund with LIC Mutual Fund and to conclude the adjudication process.
LICs have been inspected by the regulator for alleged non-compliance with MF (mutual fund) regulations, with a focus on identifying any violations.
During the inspection, the regulator found that IDBI Bank was the sponsor of IDBI Mutual Fund and directly held 66.67% and 33.33% equity interest in IDBI AMC through IDBI Capital Markets and Securities respectively.
In addition, IDBI Bank holds a 100% stake in IDBI MF Trustee Company Ltd.
Thereafter, Sebi issued a cause notice to LIC on May 31, 2023 for the alleged breach.
It was further observed that LIC acquired a 51% majority stake in IDBI Bank on January 21, 2019, by way of preferential allotment of shares.
Accordingly, LIC is suspected of violating the MF Rules as it holds more than 10% equity interest and voting rights in AMC and IDBI MF trustee companies.
According to Sebi, the norm prohibits the promoters of a mutual fund, its associates or group companies from holding 10% or more equity or voting rights in an asset management company (AMC) or any other trustee company of a mutual fund including the fund’s AMC.
“I note that the notified person (LIC) who intends to comply has lodged an application with Sebi within the stipulated time, i.e. December 5, 2019, but the notified person has had to explore other available options as he was unable to obtain the necessary regulatory approval. Option, where LIC Mutual Fund Acquisition IDBI Mutual Fund Scheme is selected.
In the order, Biju S, adjudicating officer for Sebi, said: “Furthermore, I also note that various letters were exchanged between Sebi and the notified person, wherein the notified person sought an extension of time to complete the merger process and file the required compliance report. .”
Sebi has given time until August 14, 2023 to comply with the process of merging IDBI mutual funds with LIC mutual funds.
The regulator said it was regularly informed by the LIC on the progress of the IDBI MF-LIC MF merger.
Furthermore, Sebi has no objection to the merger of IDBI MF and LIC MF schemes and advised notifiers to submit a compliance report within three months.
In addition, LIC has submitted a compliance report to the regulator within the stipulated time.
Sebi said in the order that, therefore, some of the alleged breaches by LIC should be viewed in the context of the efforts of the notifiers to complete the merger of IDBI Mutual Fund with LIC Mutual Fund.
It added that, in view of the above comments, the adjudication proceedings initiated against the notice of cause dated 31 May 2023 were dealt with and no fine was imposed.