With curbs on lending, bond yields shooting up and a limited portfolio of non-core assets to monetise, the smaller public sector banks (PSBs) under the Reserve Bank of India’s (RBI) prompt corrective action (PCA) framework are relying on non-credit products, such as insurance and mutual-fund distribution, to boost their income.
Earlier this month, Kolkata-based UCO Bank floated a request for proposal (RFP) for the selection of life insurance companies for a corporate agency tie-up for its bancassurance business. At present, it has such a tie-up with state-owned Life Insurance Corporation (LIC) of India only.
UCO Bank’s RFP follows a similar move by Mumbai-based Dena Bank, where RBI banned fresh lending last month. On May 24, Dena Bank had sought bids from corporate agencies to increase its portfolio of providers of health, general and life insurance products through the bancassurance channel.
A senior executive at the bank had told FE that the move was aimed at increasing third-party income without affecting its anaemic capital base. “We already have certain arrangements on this front. The Insurance Regulatory and Development Authority (Irda) also allows us to add more partners. So, we are looking at that possibility to augment our third-party income,” the banker had said.
Currently, Dena Bank counts as its partners LIC for life covers, United India Insurance Company and Chola MS General Insurance Company for general insurance, and Apollo Munich Health Insurance Company for health covers. Late last year, Pune-based Bank of Maharashtra (BoM) shortlisted Reliance Nippon Life Insurance Company and Aviva Life Insurance Company for insurance tie-ups. BoM was brought under PCA in June 2017.
Investment advisory is another channel through which banks under PCA are trying to support their income. On June 1, Gurgaon-based Oriental Bank of Commerce (OBC) floated a tender seeking a corporate tie-up with an online mutual fund aggregator, investment service provider and robo advisory service provider. These services will be offered to the bank’s new and existing customers.
“The engagement pre-requisite is to provide the online mutual fund aggregator services platform along with the robo-advisory services, which shall be later enhanced to offer other investment options/avenues using the common interface, thereby creating a one-stop solution for investment services,” OBC said in the tender document.
At present, the bank has tie-ups with seven asset management companies for driving the mutual fund business, primarily through its branches in an offline mode.
Smaller banks relying on non-credit products to boost their income