Mumbai: Hongkong and Shanghai Banking Corp. Ltd (HSBC) has denied a media report that said it has suspended selling mutual fund and insurance products in India.
“We have not stopped or suspended any of our offerings and we continue to provide a range of insurance and investment solutions, including a select range of mutual funds and insurance products”, HSBC said in a statement issued on Saturday in Mumbai.
The statement comes in the wake of a news story published in The Economic Times on 3 November that said: “HSBC has stopped selling insurance and mutual fund products in India. Amid mounting allegations of mis-selling and certain sharp practices, the London headquarters of the British bank, which carried out a “culture audit” of the Indian retail banking and wealth management practices, has ordered a suspension of sales.”
The bank said it has been in the process of restructuring the consumer banking and wealth management business of its India operations. It had also decided to change its incentive practice for relationship managers to bring in more accountability and a customer focus.
According to people in HSBC familiar with the development, in keeping with the overall group’s focus to move towards choosing the “advisory” model as against the “distributor” model , the bank appears to be on its way to choose the adviser model effective January 2013.
The Securities and Exchange Board of India’s (Sebi) impending guidelines to regulate investment advisers and its road map asking distributors to choose to be an adviser or a distributor has given HSBC’s plans a further push, it appears. Effective October 2012, the bank, one source adds, has moved to a “net sales” incentive system as against a “gross sales” incentive system. This means that instead of its sales staff focusing its targets based on the gross sales, the sales targets will now be fixed based on net sales. Net sales is gross sales less redemption. Focusing more on net sales keeps churning in check as higher the net sales (this will result in low redemptions), higher will the investment advisor’s commission.
Additionally, their financial year ends in December. As the bank appears to have achieved its sales targets so far this year, the bank has absolved its relationship managers of any targets (and thereby commissions) for the months of November and December. All this has led to, what looks like, a slowdown in its sales activities. The bank, one person said, will communicate the change in its policies to its investors shortly.
Commissions earned by banks and sharp selling practices by banks have been in focus over the past few years since the bank staff selling insurance and mutual fund products fall into a regulatory crack. Though the bank is regulated by the Reserve Bank of India (RBI), the products that the banks sell—mutual funds and insurance—are regulated by two different regulators. RBI has till now taken a hands-off approach to the sales practices of banks of these products and left it to the individual regulators to handle.
Increased disclosure requirements, especially from capital market regulator Sebi, has put into focus the income earned by commissions by banks. In 2011-12 for example, banks formed seven of the top 10 mutual fund distributors by commission earned. HSBC, in fact, was at the top of the list, earning just over Rs.153 crore in mutual fund commissions in 2011-12. During this year, some top distributors’ commissions went up by 20-40%. However, according to data from Computer Age Management Systems (Cams, one of India’s largest registrars and transfer agents), for the mutual fund houses that it services, private sector banks (including foreign sector banks) saw a net outflow of equity funds to the tune of Rs.174.6 crore. Private and foreign banks are among the most dominant in the distribution force.