SEBI is looking into contradictory statements about stake sale in Kingfisher to foreign airlines and private equity players and also about United Spirits selling stake to UK's Diageo
New Delhi: Following requests from bourses National Stock Exchange (NSE) and BSE, market regulator Securities and Exchange Board of India (SEBI) is investigating the affairs of some Vijay Mallya-controlled UB Group companies for alleged non-compliance with disclosure norms, reports PTI.
The stock exchanges have raised various concerns mainly about two UB Group units -- Kingfisher Airlines and United Spirits -- for not providing required disclosures and not adhering to deadline regarding finacial results and the Annual General Meeting.
Officials said that SEBI has started investigations into the issues related to Kingfisher and United Spirits Ltd (USL) following requests from the two bourses. The regulator has got information and is in the process of gathering more details, they added.
"SEBI will also look into contradictory statements made about stake sale in Kingfisher to foreign airlines and private equity players. The regulator may seek related information from the lenders also," a senior regulatory official said.
The regulator is also looking at reports about United Spirits selling stake to UK's Diageo Plc, the official added.
When contacted, UB Group spokesperson said that SEBI has sent a set of queries to United Spirits related to an announcement with Diageo Plc.
"The movement in share prices of our group companies has been largely influenced by the wide speculation by the media with no comments from us.
"SEBI has written to USL with a set of queries following a joint announcement with Diageo Plc on 25th September. We have provided the information," an UB Group spokesperson said.
Late last month, Vijay Mallya had said that Kingfisher was in talks with foreign airlines for possible stake sale. However, according to lenders, the domestic carrier was in discussions with private equity players.
Investors of Fidelity Mutual Fund will be given a 30-day window from 15 October to redeem their holding without any exit load. With a relatively new fund management team of L&T Mutual Fund and the lack of a consistent performance track record, investors of Fidelity Mutual Fund schemes should use this opportunity to exit
In March this year, L&T Mutual fund bought Fidelity Mutual Fund and as per the Securities and Exchange Board of India guidelines (SEBI), the acquired fund house would have to give investors a month’s period to redeem their investments without any fee if they do not wish to continue with the new fund management. Unfortunately for the investors of Fidelity, the buyout of Fidelity's assets did not include the transfer of its experienced fund management team. Though critical segments like risk management and processes will be manned by the Fidelity team, the lack of an experienced fund management team may affect the future performance of the schemes.
L&T Mutual Fund which entered the mutual fund industry after the acquisition of DBS Cholamandalam in 2010 had a naïve fund management team. It has been on the lookout for hiring experienced mutual fund managers to handle the large asset base and just recently it ahs been able to strengthen its fund management team. The fund house recently hired Soumendra Nath Lahiri and Shriram Ramanathan as heads of equities and fixed income, respectively.
Before the acquisition, L&T MF had hired Venugopal Manghat as vice-president & co head-equity investments. He has worked for more than 16 years with Tata Asset Management. As head of equities, he was the fund manager of Tata Pure Equity and Tata Equity Opportunities—two equity funds of Tata MF which have done well in the past.
Soumendra Nath Lahiri joined as head of equities, with effect from 24 September 2012. With 17 years of experience in equity investments and research. Mr Lahri was the head of equities at Canara Robeco Asset Management Company and had a prior stint at DSP BlackRock, as well. Mr Ramanathan joined as the head of investment for fixed income, with effect from 7 August 2012. Mr Ramanathan was portfolio manager- fixed income at Fidelity Worldwide Investments India.
How has been the performance of L&T mutual fund schemes?
We took the average of the quarterly returns of the schemes from 1 March 2010 to 30 September 2012. Compared to their benchmarks the schemes of Fidelity have performed much better. All the schemes of Fidelity MF outperformed their respective benchmarks over the period. The only schemes of L&T that did better than the benchmark were L&T Growth and L&T Midcap. L&T MF has a contra scheme which has failed to perform. Another scheme L&T Hedged Equity which aims to minimise risk by using hedging instruments such as index and stock derivative instruments to generate returns with lower volatility, however, failed to deliver returns sufficient to outperform the benchmark. L&T Opportunities, a multi-cap scheme, has failed to deliver as well. Even over the last quarter (June-Sept 2012) only L&T Midcap was able to outperform the benchmark. Fidelity MF kept up with its performance with three of its four schemes outperforming the benchmark over the same period.
The new fund management has still not got enough time to settle in. Therefore whether the performance of the existing Fidelity schemes will continue their outperformance, it is hard to judge. Handling a huge fund corpus is not an easy job. Given the opportunity to exit without any cost, investors can use this opportunity to invest in other better performing schemes with a stable fund management.
Effective from 16 November 2012 they will be many changes to the fundamental attributes of a few of Fidelity schemes and there will be some schemes that will be merged with other L&T schemes. We have mentioned the changes below scheme-wise. There could be some good reasons why you should consider redeeming your investments while you have the chance.
With the mushrooming of insurance companies and growing competition there is a pressing need to protect the interest of the consumer, and this should take precedence over raising the FDI cap
The government is hell-bent on attracting FDI. While this may be important, of far greater importance is preventing the insurers from taking the customers for a ride. This is all too common given the mushrooming of insurance companies and growing competition among them, as also poor financial literacy. What needs to be done?
The first sentence in the mission statement of IRDA reads as under: “To protect the interest of and secure fair treatment of policy holders...” In deference to this objective, IRDA should take the following steps to protect the interest of insured and ensure fair treatment of all policy holders.
1. Spread financial literacy
The foremost job of IRDA is to spread financial literacy in the varied forms of insurance among the people of our country. Insurance is a tricky business and people can be easily conned by false promises and vague statements, which can only be countered by educating the people in the intricacies of insurance. This is no doubt a tall order, but the way in which Moneylife Foundation has been continuously holding seminars on the subject of insurance without any entry fees, shows that where there is a will there is a way. This selfless service rendered by Moneylife Foundation without any expectation of reward is a shining example as this is the only NGO in the country which has been doing yeoman service in the area of spreading financial literacy in a manner that deserves to be replicated in all parts of our country in a big way. Though education is not the only panacea for all the ills of the industry, IRDA should take up this issue of education as a challenge by mandating a compulsory involvement of insurance companies in this unenviable task of educating the masses, which will not only serve the interest of investors, but also serve the cause of insurance industry admirably.
2. Introduce stringent penalties for mis-selling
Mere education is not going to solve the problem of our people because of intricacies inherent in the insurance business. The biggest bane of this industry has been mis-selling. In the good old days we had insurance agents, who understood the delicate balance between human emotions and material gain and gave correct advice to the potential customer, unmindful of any discomfiture to themselves. They were like family physicians, and took care of the needs of their customers with utmost care and sympathy, guiding them all through their life from issuing the policy till its maturity. But their breed is totally extinct today. The agents of today are totally oblivious to others’ pain as they are short-sighted and seek instant gain, instead of developing long term relationship with their clients.
In view of this changed attitude, IRDA should introduce stringent penalties for mis-selling, and impose exemplary punishment which serves as a deterrent against repetition of such wrong doing in the future. IRDA should ensure highest standards of corporate governance by all the players in the industry, and should not hesitate to levy hefty penalties on the recalcitrant players, on the lines of what Competition Commission of India did recently in the case of cement companies. The insurance ombudsmen should be armed with more powers to penalize companies against genuine public complaints and provide the much needed support to the innocent and helpless public in times of need.
3. Interest from date of happening of the event covered by the policy
One of the most reprehensible actions of insurance companies is the delay in settlement of claims on flimsy grounds which creates uncertainty in the minds of the insured. Though there are certain guidelines by IRDA that undue delay attracts payment of interest, none of the insurance companies pay any interest on their own, knowing fully well that people rarely fight for non-payment of interest. The delaying tactics are practiced by every insurer and more so by the health insurance companies, whose agents, namely “Third Party Administrators” are the major culprits in this game.
If you strictly go by the principles of insurance, the insured amount becomes due on the happening of the event covered by insurance, like death, accident, etc. In order to totally eliminate this tendency to delay payment of claims, IRDA should make it mandatory for all insurance companies to pay interest on all claims from the date of happening of the event covered by the policy, without any demand by the claimant, in the routine course of settlement of all claims. The interest rate should be high enough to discourage delayed settlement of claims and IRDA should come out with rating of companies on the basis of prompt settlement of claims. This will be the biggest reform in the insurance industry and will be a great source of comfort for the insuring public, as they can rest in peace even when they leave this world for good.
4. Set up a policy holders’ protection fund
Investing up to 49% equity by a foreign insurance company is no guarantee that the joint venture company will be able to meet all its obligations when the policies fall due for payment. Insurance is a business that lasts for a long time, and nobody will be able to judge whether the insurance company will continue to be financially sound to honour its commitments on the maturity date of the policy. Despite all the regulations, the biggest insurance company in the world, the US insurance giant AIG would have gone bankrupt, putting millions of policy holders in distress, if it was not bailed out by the US government during the financial turmoil of 2008 and this can happen anytime anywhere in the world.
In order to protect the policy holders in the event of bankruptcy of any insurance company in India, there is a need to promote an independent “Policy Holders’ Protection Fund”, and this should be set up on the model of Deposit Insurance Corporation of India which has been constituted by RBI to meet the eventuality of banks going bankrupt in the country. IRDA should take the lead in setting up this fund from the contributions to be made by every insurance company as a percentage of the premium collected by them, and this should serve as a fall back to meet the claims of policy of holders against any company in default any time in the future. The need for such a fund is now more than anytime before, as all type of insurance companies, big and small will be vying for a share of this growing market by resorting to all sorts of gimmicks and it is the primary responsibility of IRDA to protect the interest of the policy holders as enshrined in their mission statement.
It is needless to emphasize that whatever be the percentage of FDI that will be allowed in the insurance sector, the need for reforms as aforesaid are a desideratum and there is no gainsaying the fact that the government and the IRDA should not delay taking these vital steps necessary to protect our people from the clutches of those insurers waiting in large numbers to pounce on the illiterate masses of our country when India extends a red carpet to welcome them with (49%) folded hands.
(The author is a financial analyst and writes for Moneylife under the pen-name ‘Gurpur’)