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Sebi pulls up mutual fund industry over dividend distribution practice

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Mumbai :The Securities and Exchange Board of India (Sebi) pulled up the mutual fund industry over the practice of distributing dividends without the consent of trustees. According to sources, the market watchdog took a serious view of this breach during a meeting with independent trustees, who sit on the boards of asset management companies (AMCs).
The meeting was attended by Ajay Tyagi, chairman, Sebi, Madhabi Puri Buch, whole time member, Sebi and more than 80 independent trustees. It was the first meeting between independent trustees and the Sebi chairman Ajay Tyagi.
Tyagi said that the primary reason for calling the meeting was to make sure that MFs have good governance standards and highlighted the importance of safeguarding investors’ interests.
“The industry’s assets under management (AUM) have doubled in the last four years and assets of beyond-15 centres have tripled. Today, the MF industry is 20 per cent of banking system. This shows that retail participation has significantly improved. We must safeguard investors’ interests to retain their trust,” Tyagi told reporters after the meeting.
Sebi presented findings of its recent inspection report, highlighting 25 critical violations committed by the industry participants in recent years. The lapse in distributing dividends was on top of that list, with Sebi officials highlighting the need for a larger discussion on this matter.
The Sebi had recently sent out findings of its inspection report to chief executive officers (CEOs) of all fund houses, warning them against several breaches committed and demanding corrective actions.
Sebi has observed there were several instances where either the trustees’ approval for dividend distribution was not obtained or the power of trustees were delegated to the officials of AMC to declare and fix the record date as well as decide the quantum of dividend under various schemes of the fund.
Dhirendra Kumar, CEO of MF tracker, Value Research, said the market regulator wants the MF industry to not only follow the regulations on paper, but also in spirit. Recently, the balanced funds category saw mis-selling as these schemes were sold on assurance of one per cent monthly dividend yield.
According to CEO of a mid-sized fund house, besides presenting the inspection report, the regulator explained the independent trustees about their role as ‘first-line regulators’.
According to a top industry official, Sebi chief directed independent trustees to conduct technology audits of the AMCs to prevent any possibility of online frauds. The official cited above said that the regulator wants to make sure that its push towards digital is not compromised by any unforeseen events.
There can be cases where investment is done from one account and redemption is done from another. The regulator wants to make sure that such instances don’t happen, especially in smaller towns where investors can be more vulnerable to online frauds,” Kumar added.
Tyagi said there was no specific discussion on distributor commissions, however, Sebi would take up the issue with industry body Association of Mutual Funds in India (Amfi) at a meeting next month.
The regulator also emphasized on the need for improving registrar and transfer agents (RTA) reconciliation, whereby the units allotted by the RTAs didn’t match the money lying with the fund houses in real time.
“The MF industry is a good story and we must make sure that it continues,” Tyagi said.


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Business

ADB cuts India’s FY20 GDP growth forecast to 7% on fiscal shortfall worries

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New Delhi: Asian Development Bank on Thursday lowered India’s GDP growth forecast to 7 per cent for the current year on the back of fiscal shortfall concerns.

“India is expected to grow by 7 per cent in 2019 (FY20) and 7.2 per cent in 2020 (FY21), slightly slower than projected in April because the fiscal 2018 outturn fell short,” ADB said in its supplement to the Asian Development Outlook 2019.

For the south Asian region, ADB said the outlook remains robust, with growth projected at 6.6 per cent in 2019 and 6.7 per cent in 2020.

 

Earlier in April this year too, the Manila-based multi-lateral funding agency had lowered India’s growth forecast for FY20 to 7.2 per cent from 7.6 per cent estimated previously due to moderation in global demand and likely shortfall in revenue on the domestic front.

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Jalan panel proposes ‘nominal’ transfer of RBI funds to govt over 3-5 years

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New Delhi: The Union government may not get the windfall gain it was expecting from the Reserve Bank of India (RBI) reserves as the Bimal Jalan committee, tasked with reviewing the central bank’s economic capital framework, has proposed a “nominal” transfer of surplus to the central government in a phased manner, according to a source in the know.

“The report has proposed a formula for a nominal transfer of a portion of the RBI’s reserves to the central government in a period of three-five years. This is in line with the current practice being followed by the RBI for transferring dividend annually,” a person close to the development said.

The person said the panel members might “not be unanimous” on the suggestions the committee made. These will be submitted to RBI Governor Shaktikanta Das “in a few days”. The RBI’s central board, headed by Das, will take up the matter.

 

The report would likely include a dissent note by Finance Secretary Subhash Chandra Garg, who is the government’s representative on the panel.

The committee has recommended a periodic review of the RBI’s economic capital framework, according to the source.

Initially, the finance ministry had expected around Rs 3 trillion from the RBI’s reserve funds, which were at the heart of a conflict between the regulator and the government last year.

On the insistence of the finance ministry, the central board of the RBI formed a six-member committee — headed by Jalan and co-chaired by former RBI deputy governor Rakesh Mohan — in December to review the central bank’s economic capital framework.

The main difference of opinion within the panel was over transferring the RBI’s “excess” capital reserves. While most panel members are in favour of a phased transfer of the RBI’s capital reserves to the government over the years, the government’s view, voiced by Garg, was for a one-time transfer.

For this financial year, the government had accounted for around Rs 20,000 crore as “additional dividend” from the RBI, a finance ministry official said. This, the official said, is unlikely to happen.

In the Receipts Budget, allocation towards the “dividend or surplus of RBI, nationalised banks and financial institutions” was increased by Rs 23,130 crore to Rs 1.06 trillion in 2019-20, compared to the Interim Budget.

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Nod to bankruptcy code changes, will help home buyers

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New Delhi: The government today gave its approval to seven amendments to the Insolvency and Bankruptcy Code (IBC), a move that will benefit unsecured creditors like home buyers in a big way.

Minister for Information and Broadcasting Prakash Javadekar said, the IBC (Amendment) Bill, 2019, would be introduced in Parliament during this session and will have retrospective effect. An official statement read: “The amendments aim to fill critical gaps in the corporate insolvency resolution framework as enshrined in the Code.”

of all financial creditors, including unsecured ones (home buyers) covered under Section 21 (6A) “shall be cast in accordance with the decision approved by the highest voting share (more than 50 per cent) of financial creditors on present and voting basis”, it said. It also said greater emphasis had been given “on the need for time-bound disposal at application stage and a deadline for completion of CSRP within an overall limit of 330 days, including litigation and other judicial processes”. Experts say this provision will help unsecured creditors (mostly home buyers) in a big way.

 
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