Mumbai: Faced with stiff competition from private and foreign banks and losing their high- networth customers to technology-savvy competition, public-sector banks are firming up plans to offer wealth-management and investment-advisory services. Public sector banks, which account for three-fourths of the Indian banking industry, have so far ignored this segment. Some of them have already started training their employees for this purpose.
India’s largest commercial bank State Bank of India (SBI) is in the process of carving out a financial planning team that is going to provide wealth-management advisory services to its high-networth clients. Punjab National Bank (PNB) too has started offering wealth-management advisory services to its high-networth customers.
Over the past few years, high networth investors—clients with a disposable income of more than Rs5 lakh—have been shifting allegiance to private and foreign banks for superior services. According to the Asia Pacific Wealth Management report published by DSP Merrill Lynch and Capgemini, India has 83,000 people with a net worth of $1 million (Rs4.1 crore).
Road ahead: Experts feel the wide reach of state-owned banks will give them an advantage in tapping the rich.
To begin with, SBI will provide investment-advisory services to its high-networth clients with an asset base of anything between Rs20 lakh and Rs50 lakh. An official closely associated with the project says, “We realized that we were losing market share in the high-networth segment. As of now, every customer at our bank, irrespective of the whether she is keeping Rs1,000 or Rs10 lakh in her account, gets the same treatment.
“In order to provide value-added services to wealthy customers, our trained employees will look after their investment needs. They may not sell only SBI products.”
Initially, the advisory service will target only the SBI “vishesh” (special) customers. Those who have a deposit of above Rs5 lakh, a car loan and a home loan over and above a certain limit are identified as “vishesh” customers.
SBI is training its employees in the financial planning course through colleges affiliated with Financial Planning Standard Board, an independent body which conducts and regulates financial planning courses. Financial planners help customers draw a financial plan and recommend the right mix of financial products to give them the best returns.
The bank has identified about 400 staff members across its branches for this service and 200 of them are currently undergoing the training. By March 2008, SBI plans to have an army of 1,000 such officers on the ground.
Like SBI, PNB too does not plan to levy any fees in the initial phase of wooing high-networth clients. The bank has kicked off its exercise by identifying 20 clients with net worth of more than Rs50 lakh and above. It has created a group of eight officers to look after its rich clients. “Initially, we will not charge any fees for offering such services. We are confident that our initiative will stop our clients” from leaving, says a senior official of the bank who does not wish to be identified.
According to T.V. Raghunath, executive director at Kotak Mahindra Capital Co., public-sector banks have the advantage of reach. “If they take to wealth management seriously, they would be able to tap the wealthy in the tier-II and tier-III cities. Foreign banks will not not be able to compete with the muscle of PSU banks in this space,” Raghunath says.
DSP Merrill Lynch, ABN Amro, BNP Paribas, ICICI Bank and HDFC Bank are some of the established players in wealth management. Others like Deutsche Bank and Yes Bank are relatively new entrants. Wealth management has different connotations for different players, as some of them cater to super-rich customers with a networth of over Rs1 crore.
Says a foreign banker who does not wish to be identified: “Foreign banks have a share of about 7% in the entire commercial banking space and wealth management forms a minuscule portion of total business. We find it easy to penetrate the urban wealthy. If public-sector banks come into wealth-management business, they will attack the same segment, and owing to their loyal customer base in smaller cities, will have a headstart in this space.” However, private banks seem unfazed by the entry of new players.
“The opportunity is quite huge and there is a large part of the segment which is not being serviced at all. So there is definitely space for more players,” says Abhay Aima, country head, equity and private banking group, HDFC Bank.