Tapping PSU banks to widen the distribution reach of mutual fund products may not bear fruit unless the banks bring about a change in their mindset towards selling third-party products, believe industry observers.
On Monday, market regulator Sebi’s circular had asked fund houses to leverage the PSU banks’ infrastructure and develop a system for active support to them to distribute MF products through them. ?PSU banks, which have a wide bank branch network, could play a key role in mutual funds distribution,? the circular said.
Market watchers believe that PSU banks could serve as a low-cost distribution model for fund houses to penetrate into tier-2 and tier-3 cities, besides offering access to a large number of accounts and branches. The high level of trust these banks enjoyed with their clients was another significant advantage. ?It is a potentially a huge distribution channel, especially if one is thinking long term ? say, five to 10 years,” said Arvind Sethi, CEO, Tata MF.
But while the potential is huge, industry observers believe that public sector banks have not yet taken to selling mutual fund products aggressively. “It’s a case of high potential and low intent. Unlike their private sector counterparts, PSU banks don’t have a focussed team handling investment products,” said the fund house CEO of a large fund house, on condition of anonymity.
In FY13, SBI earned R36.4 crore, the most by way of MF commissions among PSU banks. The commissions, however, are way lower than those earned by its foreign and private sector peers such as Citibank (R165.3 crore), HSBC (R144.3 crore), HDFC Bank (R160.8 crore), Standard Chartered Bank (R88 crore) and ICICI Bank (R86.6 crore).
According to Sameer Hassija, senior investment analyst at Morningstar India, the PSU bank distribution model will not be effective unless relationship managers are given adequate training and guidance to sell MF products. Experts also pointed out that the fear that MF products could eat into the fixed deposit corpus could dissuade bank staff from pushing MF products.
Some fund officials, however, are hopeful that the mindset of PSU banks towards selling third-party products will change in the coming years. ?They might finally see the merit in selling third-party products in some years. After all, unlike their traditional lending business, banks don’t have to set aside capital for earning fee-based income,” said Sethi.
In late 2012, several fund houses had announced distribution tie-ups with PSU banks. Birla Sun Life Asset Management, HDFC Mutual Fund and IDBI Asset Management had announced a tie-up with Syndicate Bank to sell their schemes through the bank’s branches. SBI MF, Peerless MF and Reliance MF had entered into an alliance with Ratnakar Bank, Allahabad Bank and Indian Overseas Bank, respectively.