RBI mulls cap on banks’ group mutual funds sales

Ashley Coutinho Posted online: Tuesday, Jun 03, 2014 at 0000 hrs
Mumbai : RBI is planning to introduce a cap on the percentage of mutual fund products of group asset management companies (AMCs) that banks can sell to investors.

The central bank is looking at capping the sale of group MF products/schemes by banks at 25-30%, said sources. An email sent to RBI remained unanswered at the time of going to press. Sources also said industry body Amfi had met last month to discuss the issue and arrived at a limit of 25%. An Amfi spokesperson, however, denied there was any discussion on the topic.

At present, there are no restrictions on the percentage of MF sales that can come through a bank nor are there guidelines on the number of fund houses' products they need to sell. This means a bank can sell a significantly high percentage of MF products of its group AMC.

It is believed that several banks sell more than 40% of MF products of their group AMCs. For instance, more than 75% of MF sales of state lender State Bank of India is estimated to be that of SBI MF. An email sent to SBI MF did not elicit a response.

Fund officials believe that the introduction of a cap on bank sales of 'own' MF products would benefit fund houses as well as investors. “A closed architecture model, wherein a bank is largely focussed on selling funds of its group fund house, cannot be good for investors,” said a fund house CEO, on condition of anonymity. He added that investors should have a bouquet of products to choose from to get their portfolio allocation right.

“All fund houses should have an equal opportunity to be sold. Banks ought to recommend MF schemes of different mutual funds based on a research mechanism that zeroes in on the kind of funds that are fit to be sold,” said the sales head of a fund house. “Internationally, too, there are limits on “own” AMC sales by banks, and there is heavy penalty on overstepping this limit,” he added.

Interestingly, similar guidelines were introduced for the insurance industry earlier this year when IRDA brought out guidelines for banks acting as insurance brokers. Last year, the regulator had released final guidelines on bancassurance, allowing banks to sell insurance products of many companies.

The ministry of finance had also sent a note to the heads of public sector banks asking them to junk the agency model for the new broking model, wherein banks sold insurance products of several insurers.