CCI investigates debt trust units of SBI, Axis and IDBI over alleged fee cartel
India’s antitrust body is investigating the fiduciary units of State Bank of India, Axis Bank and IDBI Bank for
collusion over the charges, triggering legal action by a group representing them, documents seen by Reuters showed.
Indian regulations require companies that go into debt to appoint a so-called “debenture administrator” to protect investors’ interests. The trustees charge fees to debt-issuing companies and conduct independent due diligence checks on them.
The three under investigation – SBICAP Trustee Company, Axis Trustee and IDBI Trusteeship – are among the industry leaders in India, overseeing hundreds of billions of dollars in providing trustee services not only for debt securities, but also for real estate and other investment funds.
The Competition Commission of India (CCI) in a confidential December order said the Trustees Association of India – a body of which the trio are founding members – raised fees “dramatically” last year to help businesses to incur debt and prevented members from falling below a price floor, thereby harming competition.
The association has launched a legal challenge in Mumbai that seeks to overturn the antitrust investigation directive which it has called “unlawful” and “capricious”, according to court documents.
The trial will be heard on Thursday.
The antitrust investigation and impending court hearing, details of which have not been previously reported, could have ramifications for India’s nearly $500 billion corporate debt market by altering costs and affecting the operation of trustees.
A finding of cartelization could result in a fine of up to three times earnings for each year the fee was set by directors, or 10% of annual revenue for the period of violation, whichever is greater.
SBICAP Trustee and IDBI Trusteeship did not respond to requests for comment. Axis Trustee, who is listed as president of the Association of Trustees in the documents, also did not respond.
The CCI, which does not publicly disclose its ongoing cartel investigations, did not respond to an email seeking comment.
The antitrust case was sparked by a complaint from Indian gold finance firm Muthoot Finance. When it wanted to increase its debt in August last year, Muthoot received a cost proposal that was 300% higher than previous rates.
The documents showed that when Muthoot protested, IDBI said in an August email “the new price structure is decided by the Association of Trustees”, adding that “any deviation on our part in the quotation of the price would have a negative impact on us.”
The ICC, while ordering its investigation, noted: “Such collective decision-making by the association … affects competition in the markets.”
In February, it asked the association of trustees to submit its meeting minutes and explain its role in setting a minimum fee structure, a document showed.
The association of trustees defended itself in court, saying the higher fees were justified because their financial burden had increased over the years due to tighter regulatory compliance requirements.
He said he told market regulator SEBI last year that the pricing structure will be decided by administrators, but “will not be lower than the benchmark floor price”.
The group said the issue, by law, can only be reviewed by a “specialised sector regulator”, in this case SEBI.
SEBI “already provides enough checks and balances to deal with any price rigging (cartelization),” he argued.
Before approaching the antitrust body, Muthoot also filed a complaint against the directors with SEBI, which is still under review, according to the documents.
SEBI and Muthoot did not respond to questions from Reuters.
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