SBI, Axis, IDBI Abused Their Dominance For Trustee Services By Raising Fees? Competition Commission of India Will Find Out Now

The Competition Commission of India (CCI) is probing into the trustee units of State Bank of India, Axis Bank and IDBI Bank on suspicion of collusion on fees.

Regulations

Indian regulations require companies raising debt to appoint a so-called “debenture trustee” to protect investor interests.

The trustees charge a fee from the debt issuing companies and make independent due-diligence checks on them.

SBICAP Trustee Company, Axis Trustee and IDBI Trusteeship, the entities under investigation, are among the leaders in the business in India.

They oversee hundreds of billions of dollars by rendering trustee services for debt securities, real estate and other investment funds.

Substantial Hike Of Fees

The CCI stated that the Trustees Association of India – a body where the trio are founding members – last year “substantially” increased the fee for assisting companies raising debt.

They also prevented members from going below a floor price, thereby hurting competition.

The Trustees Association in turn has taken the matter to the Mumbai court, seeking to quash the antitrust investigation directive it has termed “illegal” and “capricious”.

Repercussions

The ongoing probe and the upcoming court hearing could have consequences for India’s nearly $500 billion corporate debt market by altering costs and affecting the way trustees operate.

If evidence of cartelisation is found, a fine of up to three times the profit in each year the fee was fixed by the trustees, or 10% of annual revenue for the period of violation will be imposed.

An antitrust case was opened after a complaint from gold financing company Muthoot Finance.

How The Case Came To Be

When it wanted to raise debt in August last year, Muthoot received a costing proposal which was 300% higher than previous rates.

When it protested, IDBI emailed that the new pricing structure was decided by the Trustee Association and that “any deviation by us in quoting the price would lead to adverse repercussions on us”.

The CCI said that such collective decision making by the association affects competition in the markets.

Association’s Defense

It then asked the association to submit their meeting records and explain its role in fixing a minimum fee structure.

The association justified the higher fee, saying that their cost burden had gone up over the years due to enhanced regulatory compliance requirements.

It had informed SEBI last year that the pricing structure will be decided by trustees, but it “will not be below the benchmark floor price”.