Sensing the growth of inflows in the Indian equity market, overseas and domestic players in the stock broking business are lining up to offer custodial services. The size of the business in India is estimated to be around Rs 2,000 crore.

Further, opportunities from local mutual funds wanting to outsource their non-core administrative functions such as fund accounting and growth in the domestic organised pension sector is expected to take the industry to more than double its current size. Lining up to enter the fray are French banking major BNP Paribas, SBI-Societe Generale, Hong Kong-based JP Morgan and domestic players like Religare, Prabhudas Lilladher and Anand Rathi Securities.

?The Indian fund industry is moving into its next phase of expansion and change, and the intensive competition will mean that fund houses focus on their core business of investment management, and sales and distribution. They will therefore look at partners with strong technology and in-depth experience to support their operational needs. They are also looking for partners who can provide them the benefits of economy of scale,? said Debopama Sen, head of securities and fund service, Citi India. The firm, which has around 33% market share in the FII space and close to 20% in the domestic space, expects to continue on its growth path.

?Till recently, only foreign institutional investors, insurance companies and mutual funds were being serviced by custodians. Now, newer client segments, including high-net worth individuals, increasingly understand the need and value of engaging a custodian. The Sebi guideline making it mandatory for portfolio managers with over Rs 500-crore assets to appoint a custodian has also given a fillip to growth in the industry. With markets on an upswing, we expect more business flow to custodians,? said Saurabh Mittal, vice-president, securities service, DBS Bank Ltd.

DBS Bank Ltd is striving to become one of the top five custodial service firms in India.

At present there are 16 Sebi-registered custodians operating in India. Dominant among them are Citi, HSBC and Deutsche Bank, catering to FII?s, sub-accounts, MFs and insurance companies.

Apart from providing custodial services, these institutions also provide other services like fund accounting, derivative clearing and corporate action reporting. And the entry of global banking majors is expected to pose fresh challenges to the dominance of existing players.

Societe Genarale has entered into a joint venture with SBI to offer custodial services and will be agressively pitching for domestic and overseas institutional business.

JP Morgan Chase, which already had a Sebi licence to start custodial service in India, was using HSBC as sub-custodian till now. However, JP Morgan, with its global expertise in the field of custodial services, is now planning to start its own operation, which, experts argue, could take some business away from HSBC. ?We are still working through our options,? said a JP Morgan spokeswoman without elaborating further on the development.

Similarly, BNP Paribas, which is yet to formally approach market regulator Sebi for registration, is now in the process of setting up the necessary infrastructure. A Religare spokesperson said the company was keen on custodial business in India and the matter was pending regulatory approvals. Senior executives of Anand Rathi Securities were unavailable for comment while an email sent to Prabhudas Lilladher did not elicit any response.