While a high interest rate regime is giving rise to the new fund-raising methods, promoters are wary of share pledging details becoming public as they fear it to indicate a bad financial health
New Delhi: Suspecting possible circumvention of its disclosure norms for share pledging, the Securities and Exchange Board of India (SEBI) is mulling changes in the rules to bring to the fore cases of promoters raising funds by keeping shares as 'indirect collateral', reports PTI.
At the same time, the market watchdog is also considering making it mandatory for company promoters to disclose the amount of funds raised by share pledging and the utilisation of such proceeds, a senior official said.
After the Satyam scam, which revealed the promoters having pledged almost all their shares, SEBI had made it mandatory in January 2009, for promoters of all listed companies to disclose their share pledging activities.
However, these norms require only the disclosure of the number and percentage of shares pledged and not the amount of debt or funds raised by keeping shares as collateral.
In the recent past, various cases have surfaced when investors have resorted to panic selling after coming to know about the huge amount of funds raised by promoters through share pledging, as also by indirect pledging of shares, to avoid SEBI's disclosure norms.
Sources said the regulator has received complaints of promoters resorting to informal and private financing arrangements with shares as collateral to avoid the disclosure norms.
In many cases, these arrangements are entered into with entities outside the banking system and promoters do not pledge the shares of the listed companies themselves, but use the shares of unlisted special purpose vehicles (SPVs), which are created solely for the purpose of financing.
In its initial investigation, SEBI has found that the promoters generally turn to NBFCs (non-banking financial companies) and brokerage firms to raise funds with shares of some holding companies or SPVs as collateral, rather than using the shares of directly listed companies.
SEBI is also concerned by the allegations of promoters resorting to fund-raising activities of huge scale through formal and informal pledging without revealing either the size of the funds or the end-use of these proceeds, sources said.
As per the share pledging disclosed by the companies, promoters of about 800 companies have pledged shares worth an estimated Rs1,50,000 crore.
However, the current disclosure norms do not provide any estimate of the funds raised through such pledging and it is feared that the actual cases of pledging could be much wider.
While a high interest rate regime is giving rise to the new fund-raising methods, promoters are wary of share pledging details becoming public as they fear it to indicate a bad financial health.
Senior executives at some other fund houses admitted that mutual funds in India were yet to act as 'activist' shareholders, as has been the case in developed markets of the US and Europe
New Delhi: Mutual funds (MFs) may soon face some tough questions from market regulator Securities and Exchange Board of India (SEBI) regarding the exercise of their vote on key business proposals of the companies in whose shares they have put in investors' money, reports PTI.
The market watchdog is irked by the casual approach adopted by most of the funds when it comes to voting on proposals put forth by the company management for shareholder approval, as also the disclosure of these votes, a senior official told PTI.
The current dispensation at SEBI, with chairman UK Sinha coming from a mutual fund background, is looking at measures like distributor incentives and making MFs a preferred stock market route for retail investors.
At the same time, the regulator wants funds to adopt the role of conscience-keeper for listed firms by actively raising their voice on the listed companies' corporate governance practices, the official added.
Mutual funds collect money from investors and put the capital in shares of various listed companies and thus become their major institutional shareholders. This gives them significant voting power in key decisions of listed firms, but they have so far mostly acted as yes-men or indifferent when proposals are put to vote by the companies.
This passive stance of fund houses, including by leaders like ICICI Prudential and Reliance MF, has come to fore after SEBI pushed them to make public their votes as shareholders.
Unsatisfied by the disclosures, SEBI is considering changes in its rules and might ask the funds to be more specific, including about reasons behind their votes.
Some funds are now considering outsourcing their voting job to specialist entities.
However, SEBI might wait for its proposed policy on outsourcing by market entities to come into place before taking any decision on any such proposal from the fund houses.
On their part, some MFs assert that they take utmost care in deciding on votes and they invest only in those companies where they have faith in the management's decisions.
While large fund houses like Reliance MF and ICICI Pru did not reply to queries on their voting, Quatum MF said it decides carefully on each vote.
"At Quantum, we understand the responsibility of proxy voting. It is only after careful consideration of each proposal that we decide to vote for it or against it, or abstain from casting our vote," Quantum AMC director IV Subramaniam said in an emailed statement.
"This year it could be a case where most resolutions deserved a 'yes' than a 'no'. Additionally, in the case of Quantum, we invest in good businesses with good managements.
This itself allows us to avoid companies that have too many contentious issues to be voted on," he added.
However, most of the fund houses have either favoured the proposals or have decided to abstain from voting and instances of voting against a proposal is abysmally low.
The voting pattern is also in sharp contrast to SEBI's aim to push the mutual funds to act as conscience-keeper of listed firms by actively voicing their support or opposition to various business decisions of the companies.
SEBI made it mandatory last year for fund houses to make public their 'voting policy' and also their votes, but it took another reminder by the regulator last month for them to declare their voting details.
Subsequently, the funds have disclosed their votes for the fiscal year 2010-11, but the market regulator is unsatisfied with details provided by some of them. In some cases, funds have disclosed their votes without even naming the company, while there are also instances of all votes not being disclosed.
Quantum's Mr Subramaniam said: "If there are some serious corporate governance issues, then we have preferred to exit the investments rather than voting against the issue."
He gave the example of Ranbaxy, where it exited the stock when the founders sold their shares to a foreign partner without giving a similar chance to minority shareholders.
"Similarly, in other cases, we have written letters to management seeking an explanation for certain actions. It is our earnest intent and actual practice to play an active role on behalf of our investors in the decisions taken by the companies we invest in," he said.
Mr Subramanian said that voting at general body meetings was one way to express our opinion, though not the only one.
Senior executives at some other fund houses, however, admitted that mutual funds in India were yet to act as 'activist' shareholders, as has been the case in developed markets of the US and Europe.
It was in the backdrop of Satyam scam, which came to light partly due to dissenting voices raised by some MF shareholders against the management at that time that SEBI had decided to promote the activist role of fund houses.
The market watchdog is of the view that the fear of a possible opposition by institutional investors like mutual funds being made public would force the companies to follow the best corporate governance practices in their businesses.
Some banks, which have substantial CASA (Current Account Savings Account) deposits, do have some neutralising impact on rise in cost of funds. However, these banks will also have to raise rates soon to stay competitive in the market
New Delhi: Major public sector banks, including State Bank of India, Punjab National Bank and Bank of Baroda, are likely to soon raise lending rates making home, auto and commercial loans expensive, reports PTI.
As many as a dozen banks, including private sector leader ICICI Bank have already hiked their lending rate by 25 basis points (bps) in response to the tightening of monetary policy by the Reserve Bank last month.
It is a matter of time that other lenders would follow the suit as cost of fund has gone up following the 25 bps increase of key policy rates by the Reserve Bank of India (RBI) on 16th June, experts said.
The RBI hiked key short-term lending and borrowing rates by 25 bps (0.25%) each with immediate effect to tackle inflation. The short-term lending (repo) rate rose to 7.5% and the borrowing (reverse repo) rate at 6.5%.
Some banks, which have substantial CASA (Current Account Savings Account) deposits, do have some neutralising impact on rise in cost of funds. However, these banks will have to raise rates soon to stay competitive in the market, experts said.
Besides, banks would raise rates in order to protect their net interest margin (NIM), they added.
In response to tight money supply by the RBI, banks started raising lending rate.
On Saturday, ICICI Bank increased lending rate by 25 bps raising cost for those who had taken advances on floating rate of interest.
Besides, leading public sector lender Canara Bank also raised lending rate by 25 bps. Other state-owned lender Indian Overseas Bank and Dena Bank have also announced increase in their lending rates by similar margin.
Earlier in the week, Corporation Bank also raised base rate or minimum lending rate by 25 bps.