Canara Bank,one of the first public sector banks to enter the asset management business in India, will partner with a foreign company in an effort to improve its performance in an increasingly competitive industry.
On Monday, the bank announced to the Bombay Stock Exchange that it intended to sell a 49% stake in its asset management arm, Canbank Investment Management Services Ltd, for $26 million (Rs115 crore), to the Netherlands-based investment management firm Robeco N.V. and form a joint venture. Robeco is owned by Rabobank Group NV and manages $185 billion.
Canara Robeco, as the joint venture is to be called, is slated to begin operations by the end of the year, Robeco chief executive officer George Moeller told reporters.
The Canbank divestment comes a few weeks after Bank of Baroda Asset Management Company Ltd and almost three years after SBI Funds Management Pvt Ltd made similar moves to boost their asset management practices by partnering with foreign companies.
The asset management business has become aggressive, mutual fund experts said, and banks cannot hope to compete without global expertise.
Bank of Baroda entered into a joint venture with Pioneer Global Asset Management, and informed the in February that it would sell a 51% stake in its asset management company, although a final arrangement is still being negotiated. SBI Funds Management Pvt. Ltd divested 37% of its asset management arm to France-based Societe Generale Asset Management.
Meanwhile, three other banks—Bank of India, Indian Bank and Punjab National Bank (PNB)—exited the asset management business.
PNB later went on to acquire a stake in Principal Asset Management Company.
“Public sector bankers can’t run mutual funds in a competitive environment,” said Dhirendra Kumar, head of mutual fund research company Value Research Online. “They are unable to change with the times.”
Canara Bank was one of the first few entrants into the asset management business in the late 1980s after the government allowed banks and insurance companies to run mutual funds.
Yet, its asset management practice that managed Rs4,000 crore stumbled—like others in mutual funds—after the stock market scams in the early 1990s.
The bank also faltered when it promised high returns on its Canstar scheme, which failed before maturity leaving the bank to bail out the asset management business.
Canbank’s asset management business could never recover from this upheaval. In the past year, the assets managed by Canbank dropped by 25% to Rs2,200 crore, even as other asset management companies saw large increases in the pools they manage.
Canara Bank could not be reached for comment. “It makes logical sense,” Kumar said about Canbank’s joint venture.
Mutual fund experts say that foreign players have the global knowledge and a range of products, while banks such as Canara have a strong brand and a country-wide network of branches.
SBI Funds Management Pvt. Ltd has benefited from the joint venture, and has seen a 43% increase in its assets under management in the last year.
“The Indian asset management space is a mouth-watering market to be in,” said Sameer Kamdar, national head of mutual funds for mutual fund distributor Mata Securities India Private Limited, who expects the number of companies in the business to go up from the current 33 to 50.
Canara Bank has a market capitalization of Rs7,380 crore and saw its stock price dip 0.58% on Monday, closing at Rs180, even as the benchmark index Sensex rose 1.73% to 12,644.99 points.
(Bloomberg contributed to this story.)