The Competition Commission of India (CCI) is investigating the trustee units of State Bank of India, Axis Bank and IDBI Bank for suspected collusion over fees, leading to a lawsuit by a group representing them, documents released by Reuters show. realized.
Indian regulations require companies taking on debt to appoint a so-called “debenture trustee” to protect the interests of investors. The trustees charge a fee to the companies issuing the debt and perform these independent due diligence checks.
The three under investigation – SBICAP Trustee Company, Axis Trustee and IDBI Trusteeship – are among the leaders in the company in India that oversees hundreds of billions of dollars by providing trustee services for not only debt securities, but also real estate and other assets. investment funds.
CCI said in a confidential December decision that the Trustees Association of India – a body of which the trio are the founding members – last year “significantly” increased the fee for helping companies take on debt and prevented members from falling under a rock-bottom price, thereby damaging competition.
The association has filed a lawsuit in Mumbai seeking to overturn the antitrust investigation directive it has called “illegal” and “fickle” in the court’s opinion. The lawsuit will be heard on Thursday.
The antitrust investigation and upcoming court hearing, details of which have not yet been reported, could impact India’s nearly $500 billion corporate debt market by altering costs and influencing the way trustees operate.
A finding of cartel formation can result in a fine of up to three times the profit in each year that the compensation is determined by the trustees, or 10 percent of the annual turnover for the period of violation, whichever is more.
SBICAP Trustee and IDBI Trusteeship did not respond to requests for comment. Axis Trustee, who is listed in documents as chairman of the Trustee Association, also did not respond.
The CCI, which does not disclose its ongoing cartel investigations, did not respond to an email asking for comment.
COMPLAINT BY BORROWER
The antitrust case was triggered by a complaint from Indian gold finance company Muthoot Finance. When Muthoot wanted to go into debt in August of last year, he received a cost proposal that was 300% higher than previous rates.
The documents revealed that when Muthoot protested, IDBI said in an August email that “the new pricing structure has been established by the Trustee Association,” adding that “any deviation by us in quoting the price would result in adverse consequences.” for us”.
The CCI ordered its investigation, noting, “Such collective decision-making by the association … affects competition in the markets.”
In February, it asked the trustee association to file their meeting minutes and explain its role in establishing a minimum fee structure, a document showed.
The trustee association has defended itself in court files, saying the higher fee was justified, as their costs had increased over the years due to improved compliance requirements.
It said last year it had informed market regulator SEBI that the price structure will be set by trustees, but that it “will not be lower than the standard floor price”.
The group said the matter can legally only be investigated by a “specialized sectoral regulator”, in this case SEBI.
SEBI already provides “enough checks and balances to deal with any price manipulation (cartel formation),” it argued.
Before approaching the competition authority, Muthoot also filed a complaint against the trustees at SEBI, which is still under review, the documents said.
SEBI and Muthoot did not respond to questions from Reuters.
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