No loan support to OMCs, finmin for equity route The finance ministry is unlikely to accept state-run oil marketing companies’ (OMCs) demand for either grant or loan route for the promised Rs 30,000 crore government capital support to them in the current financial year . The entire support, which is aimed at boosting their ability to invest in energy transition and clean technology projects, will be in the form of equity, a senior official told FE. “Even though no final decision has been taken yet, it may not be a loan, but an equity infusion. If the government invests, it must get equity,” he said. In the Budget 2023-24 presented on February 1, the government had said that the proposed equity capital investment in OMCs was towards energy transition and net-zero objectives. Following the announcement, Indian Oil, BPCL and HPCL have approached the petroleum ministry suggesting capital support through loans as an alternative, keeping in mind the market sensitivity to an increase in the government holding in these companies after the equity infusion. They also see loans as a cheaper option than equity support from the government. “OMCs have presented a few modalities to the ministry of petroleum and a decision is awaited,” an OMC official said. The combined loss of three state-run retailers for the first half of the previous financial year was a whopping Rs 21,201 crore due to the virtual freeze on petrol and diesel prices when global prices rose. This has deprived the government and other stakeholders of dividend income from these fuel retailers in FY23. With the crude prices falling from around $115/barrel in May, 2022 to the current level of around $75, these companies are now making profits from both refining and retail sale of auto fuels. In normal circumstances, these OMCs pay around Rs 10,000 crore in dividends annually to the government and ONGC (holding company of HPCL). The government’s direct/indirect holding in the three state-run retailers, which supply over 90% of domestic fuel supplies, is bordering 51%, the minimum required to be classified as a state-run firm. The Centre owns 51.5% of IOC and 52.98% of BPCL. The country’s top state-run explorer ONGC owns 54.9% of HPCL. Also read: Rail Vikas Nigam share price up 73% in one month; are current levels suitable for entry? With the huge losses putting pressure on the OMC’s finances, the Centre announced the capital investment in their refinery upgradation and emission reduction projects, among others. The government’s plan to privatise BPCL came a cropper in FY22 primarily due to a lack of pricing freedom to the state-run OMCs amid global uncertainties in the hydrocarbon market. (With inputs from Manish Gupta)
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In its consultation paper, Sebi has suggested that trustees of mutual funds should focus on market abuse by AMC, its employees and mis-selling by the AMC to increase the asset base.
Also, trustees should be responsible for fairness of fees and expenses charged by the AMC, compare its performance with peers and ensure that AMC’s sponsor is not getting any undue advantage.
In addition to the core areas, the trustees should be responsible for periodically reviewing the steps taken by AMCs for the folios which do not contain all KYC attributes with bank details.
Further, Sebi has suggested that trustees and their resource persons should independently evaluate the extent of compliance by AMC and not merely rely on AMC’s assurances.
To facilitate trustees’ supervision, AMCs should provide them with analytical information.
Presently, the trustees primarily rely on the AMCs for ensuring compliance with the applicable rules.
Under the rules, trustees hold the property of the mutual fund in trust for the benefit of the unitholders. The trustees appoint an AMC to float schemes for the mutual fund and manage the funds mobilised under various schemes, in accordance with the investment objectives.
“In view of the increasing scale and reach of the mutual fund industry, trustees’ role in respect of unitholders’ protection assumes even greater significance,” Sebi said on Friday.
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Over the past decade there has been a five-fold increase in the size of the mutual fund industry. The assets under management (AUM) has surged from Rs 7.93 lakh crore in November 2012 to Rs 39.89 lakh crore in December 2022.
To ensure that trustees devote time and attention to their core responsibilities, Sebi has suggested that for fulfilling other responsibilities, trustees may rely on professional firms such as audit firms, legal firms, merchant bankers for carrying out due diligence on their behalf.
The Sebi also listed some duties trustees can delegate to AMCs. This include ensuring that all systems are in place prior to the launch of any scheme by the AMC, and calculating any income in the mutual fund due to the fund and any income received in the mutual fund for unitholders.
The regulator has proposed to provide a one year time to existing trustees with board of trustee structure to convert into a trustee company, from governance point of view.
Presently, two structures for trustees are permitted — corporate and board of trustees structure. Moreover, there are a few mutual funds which have the board of trustees structure while the trustees of all other mutual funds have adopted the structure of a trustee company.
Considering the enhanced role of trustees over the period of time, Sebi has suggested to increase the minimum number of trustees to adequately perform their functions. Presently, the minimum number of trustees prescribed is four.
Also, it has been proposed that the chairperson of the trustee company should be an independent director.
Sebi has suggested that apart from the meeting of the audit committee of AMCs and trustees (which mostly comprises of independent directors), the board of AMCs and the board of trustees may be mandated to meet at least once a year to discuss the issues concerning the mutual funds.
The regulator proposed that the existing MF Regulations on AMC and its obligations may be amended to include additional clauses with respect to the obligations of the board of AMC.
The proposed amendment may include a clause which casts an obligation on the board of AMC to ensure that all the activities of the asset management company are in accordance with the provisions of these regulations.
The Securities and Exchange Board of India (Sebi) has sought comments from public till February 24 on these proposals.