PSU banks fail to sell MFs-Business Standard
State Bank of India (SBI), Punjab National Bank, Bank of Baroda, Canara Bank and Union Bank of India all have their asset management companies (AMCs). SBI apart, the others earned dismally low brokerage incomes by selling MFs, less than Rs 10 crore each, in 2013-14. SBI, with a little over 13,000 bank branches, did marginally better — it earned Rs 29 crore.
Private banks, with a much lower branch base, sold MFs more aggressively. HDFC Bank, ICICI Bank and Axis Bank had brokerage incomes of Rs 159 crore, Rs 118 crore and Rs 94 crore, respectively, that year.
Says a leading distributor: “Private banks are more aggressive in this business because they consider the fee income — brokerage and trail commission — an important aspect of their balance sheet.”
As a result, PSB-sponsored MFs are ranked low. SBI's, with average assets of Rs 72,800 crore is 6th in the ranking, an exception among PSBs. Baroda Pioneer, a joint venture between Bank of Baroda and Pioneer Investors, with assets of Rs 7,100 crore, was ranked 22nd; despite a good market, its average assets have fallen since March by Rs 1,000 crore.
More interesting is their strategy. PSBs have concentrated on only selling schemes of their fund house. SBI earned 97 per cent of its brokerage income from its own AMC. Union Bank and Canara Bank have 94 per cent and 100 per cent of incomes from their AMCs'. Clearly, they are unwilling to sell other MF products, though a senior executive from Canara Bank said, “We also have tie-ups with other AMCs. (But), besides the fee money, the overall improvement of the joint venture is also the motive.”
MF managers say all this is a a pity, as these banks have a strong branch network. "A number of schemes that are doing very well but might not belong to the PSB-sponsored fund houses. If they push these schemes as well, they will get more income, beside selling a scheme that has a good history.” In sum, PSBs are acting as agents of their own AMCs, rather than brokers.
Said Hemant Rustagi, chief executive of Wiseinvest Advisors, an MF distributor: “If the sector wants to move beyond the top-15 cities, PSBs have a big role. They are already established in smaller towns and have the confidence of the bank customer. Fund houses on a standalone basis will take a long time to establish their brand in these places.”
Those in the MF sector say as many banks do not set targets such as on fee income from selling such products, branch managers are more interested in meeting their deposit and loan targets. MFs take a back seat.
“Members are of the view that this proposal to restrict the credit appraisal process to some five or six banks is not in best interest of the banking industry,” the IBA letter sent to the ministry of finance noted.
An IBA official confirmed the association had replied to the ministry citing the views of bankers but had not yet got a response.
At the managing committee meeting of the association last month, bankers pointed out they were satisfied with the current process of each bank appraising the risk on its own rather than relying on the lead banker. Among the banks that the ministry had suggested should do credit appraisals are State Bank of India (SBI), ICICI Bank, Bank of Baroda and IDBI Bank.
Bankers are hoping the finance ministry will agree with its views since they believe collective due diligence may not work. SBI chairman Arundhati Bhattacharya had said recently that only if the due diligence was done by the banks themselves would a proper appraisal be possible.”You won’t be able to take the right decision until you understand the risks and the appetite for it,” Bhattacharya had said.
Bankers pointed out that while intermediaries like SBI Capital Markets do undertake the credit appraisals for consortium loans, banks do not depend on their assessments and carry out the due diligence themselves. The ministry had last month expressed concerns regarding the due diligence process, questioning the outsourcing of the process to an intermediary that appraises the exposure on the bank’s behalf. The concerns stem from the large amounts of non-performing assets (NPAs) that public sector banks have on their books. The ratio of gross NPAs to gross advances stood at 4.1% in FY14, up 70 basis points (bps) from 3.4% reported in the previous financial year, according to Reserve Bank of India. Net NPAs, on the other hand, were up 50 bps to 2.2%.