India regulator to scrutinise asset managers in warning of shakeout

MUMBAI, June 26 Wed Jun 26, 2013 10:36am BST

MUMBAI, June 26 (Reuters) - India's markets regulator has set up a committee to scrutinise underperforming asset managers and set long-term policy on the mutual fund sector, the head regulator said, as government concern mounts over fund redemptions and the sector's stunted development.

The move by the Securities and Exchange Board of India (SEBI), which oversees India's fledgling 8.68 trillion rupee ($145 billion) mutual fund industry, could signal a shakeout in a sector that SEBI Chairman U.K. Sinha has hinted contains too many players.

"We have got some non-serious players in the mutual fund industry," Sinha told reporters in the sidelines of a mutual fund conference.

Redemptions from Indian equity mutual funds have been heavy over the past three-and-a-half years, with many investors still wary after getting burned by the 2007-08 crash. Redemptions rose to an eight-month high of 29.1 billion rupees in May, according to the latest available industry data.

India is keen to revive the sector to expand investment opportunities and tap the financial resources of savers in small towns and rural areas.

Most asset managers have stuck to the big cities, however, and remain unprofitable amid stiff competition, giving them little leeway to expand.

The country has more than 44 asset managers, although the top 10 account for 80 percent of total assets under management, according to Association of Mutual Funds in India.

Sinha has been a vocal critic of the large number of poorly performing funds, although he has not publicly named any individual company.

Sinha said the committee was set up with the overall purpose of developing a long-term policy on mutual funds while seeking answers from funds perceived to have underperformed.

"Now, if the bottom 10 percent of them are continuously having less than 1 percent of (assets under management) then it's time for them to think of a different business model," he said.

Sinha gave no further details on the committee.

The Indian government has tried to counter the fund redemptions with as-yet unsuccessful initiatives such as the Rajiv Gandhi Equity Savings Scheme geared towards lower-income individuals. ($1 = 59.6900 Indian rupees) (Reporting by Himank Sharma; Editing by Edmund Klamann)