Mumbai: India’s largest lender has trained a veritable army to sell mutual funds to its customers, in a year-long programme that could change the face of the country’s mutual fund distribution business.
Around 18,000 employees of State Bank of India (SBI) have passed a mandatory industry test that makes them eligible to sell mutual funds, said two bank employees involved in the programme, giving the public sector bank the biggest mutual fund marketing machine in the country. The two SBI officials requested anonymity.
While a little more than 100,000 individuals have qualified to distribute mutual funds as of December, informal industry estimates suggest that barely 30,000-40,000 of them actively sell mutual funds to clients. The others prefer to sell insurance products after a June decision by the Securities and Exchange Board of India (Sebi) to ban upfront commissions on the sale of mutual fund units to investors.
SBI will thus likely have one-third of the nation’s active mutual funds sales force.
Any person wanting to sell mutual funds in India has to first qualify in an examination conducted by industry body Association of Mutual Funds of India (Amfi). The SBI programme is called ACE, acronym for Amfi Certified Employee.
The Rs7.81 trillion Indian mutual fund industry has been in a state of flux after Sebi banned upfront commissions. The regulator has since encouraged asset management companies to allow investors to buy and sell mutual fund units on the stock exchanges, but volumes have been poor.
SBI has even motivated its employees to take the test by giving a one-time cash award of Rs5,000-10,000 depending on their position in the hierarchy and performance in the test, one of the two SBI officials said.
Though these employees are now eligible to sell units of all the three dozen-odd fund houses in the country, they will focus on products of the bank’s subsidiary SBI Funds Management Pvt. Ltd.
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SBI Funds serves its investors through a network of 260 points of sales and service. The parent bank also has 12,207 branches, 8,500 automated teller machines and electronic channels such as Internet banking.
The public sector bank’s aggressive moves in mutual fund distribution is an indication of the growing importance of captive distribution channels compared with third party distributors such as agents.
A recent study by consulting firm McKinsey and Co., Asset Management Survey 2009, said proprietary bank channels and direct sales accounted for just 10% of the total retail inflows into mutual funds. Independent financial advisers and third party distributors accounted for 68% with the remaining 22% coming from nationwide distributors of financial products such as Bajaj Capital Ltd.
In this context, public sector banks such as SBI offer “the next big hope” for the mutual fund industry, said Rajesh Krishnamoorthy, managing director iFast Financial India Pvt. Ltd. “Ten thousand people going to the public and talking about mutual funds is really good for the industry. With such a huge branch network, they are sitting on a goldmine,” he said, referring to SBI’s huge retail customer base.
Krishnamoorthy also pointed to the juicy fee income earned by smaller private banks. “A huge portion of this fee-based income comes from selling investment products to retail individuals,” he said.
“Axis MF (mutual fund) is the perfect example of what a captive bank channel can do to your business,” said Sanjay Santhanam, a former marketing head at leading asset management companies.
According to Santhanam, the idea of public sector banks entering the mutual fund space is just what the doctor ordered for the industry: “But it will be interesting to see how the banks incentivize the staff (for selling mutual funds).”
Axis Asset Management Co. Ltd, which launched operations in October 2009 has been able to mop up a corpus of Rs3,754 crore leaving behind at least 14 of its older rivals aided largely by the distribution muscle of its parent Axis Bank.
The Reserve Bank of India rules do not allow banks to give cash incentives to staff for selling financial products.
Public sector banks are still working out ways to incentivize staff to market various products without running afoul of regulations.
“One of the options is to maintain some kind of a points system, wherein points accumulated can be redeemed periodically for gifts,” said Santhanam, “but if public sector banks have to realize their dream of becoming financial supermarkets, these old rules need to go.”
Mint could not ascertain what incentives SBI is offering its mutual fund sales force.
Even many new entrants into the mutual fund business are those who have a strong banking channel support. Over the past week, two asset management companies announced their plans.
IDBI Asset Management Co. Ltd, which will soon launch its funds, will initially sell its products through the 700 branches of its parent bank.
Union KBC Asset Management Co. Ltd, another new venture, which has received Sebi approval, said it will use 2,700 branches of the Union Bank of India to market funds.
A senior official of SBI Funds Management Pvt. Ltd said: “In the past two months, the banking channel has helped us mop up in excess of Rs1,000 crore. We are one of the few fund houses who have seen net inflows this quarter.” he said.
According to him, the bank can play a much larger role given its network and reach. “At present, the banking channel contributes 25-30% of the inflows. Given its strength, this number can easily be 50-51%,” he said.
Graphics by Yogesh Kumar / Mint