Ahead of IPO, Unit Trust of India moves to clear pension hurdle

Nearly 800 former employees of the erstwhile Unit Trust of India (UTI) might be a step closer to securing a resolution on a matter that has been hanging fire for more than 15 years. 

In a meeting held recently, the board of directors at UTI MF, the country’s sixth-largest asset manager, discussed the long-pending demand for providing pension to its erstwhile employees who had opted for voluntary retirement in 2003, said two people familiar with the matter.

The issue assumes significance as UTI MF readies to list itself on the bourses and provide an exit to existing shareholders. 

The UTI MF management had written to the government regarding the pension conundrum in 2013 and 2015 but drew a blank on both occasions. 

Managing director Leo Puri is expected to meet government officials to work out a plan of action, said sources.

Total pension payout to the 780-odd employees could amount to Rs 3-4 billion, said a person in the know. It is not clear if the amount will be paid out of UTI MF's books or whether the Specified Undertaking of the Unit Trust of India (Suuti) -- formed by the restructuring of the erstwhile UTI in 2003 -- will step in to foot the bill. A payout by the former could impact valuations for its upcoming initial public offering.

UTI MF did not respond to questions on how the matter would be resolved.

UTI had constituted a staff welfare fund which became part of Suuti after the former split into two entities. Suuti and UTI MF have not been on the same page with regard to the pension payout. 

“UTI MF believes Suuti should settle with the employees since it has the staff welfare money; SUUTI feels otherwise since the employees were technically part of UTI MF,” said a person in the know. Suuti has no permanent employees.

UTI had offered a Voluntary Retirement Scheme (VRS) in 2003 for employees completing 10 years of service, opted for by about 1,200 employees. "The objective is to make the organisation lean. We are not hugely overstaffed but there could be a VRS to cut the flab," former UTI chairman M Damodaran had told Business Standard in January 2003. Back then, UTI had an employee base of 2,500 across 54 offices in the country.

According to Unit Trust of India Pension Regulations, 1994, pension would be payable to all full-time and part-time employees (exceeding 13 hours per week) who have completed 10 years of service.

“Those opting for VRS were not offered the pension option, which was generally applicable to all employees and part of the service conditions back then. The UTI MF management has now taken note of this issue, fearing the IPO will get stuck,” said the person quoted above.

In December last year, the Securities and Exchange Board of India (Sebi) imposed a 10 per cent cross-shareholding cap to prevent a conflict of interest that could arise out of holding stakes in different mutual funds. The diktat was expected to prompt UTI AMC to accelerate its plans to list itself. Four large public sector financial institutions — State Bank of India, Life Insurance Corporation of India, Bank of Baroda and Punjab National Bank — are currently sponsors of UTI AMC.

As of March 2018, the AMC had assets of about Rs 1.5 trillion, according to the Association of Mutual Funds in India. It was the top asset manager till 2005-06 but has gradually slipped out of the top five.

Reliance AMC listed on the bourses last year, and another large fund house, HDFC MF, has filed its draft offer document with the regulator for an IPO.

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