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SBI leans on network to boost MF arm

SBI leans on network to boost MF arm

Mumbai: The nation’s largest lender, State Bank of India (SBI), is chasing a target of Rs10,000 crore in equity funds this fiscal year for its mutual fund (MF) arm by leveraging on its nationwide branch network as it tries to catch up with private sector rivals.

SBI has told its branches that the money, which would go to the assets under management at SBI Funds Management Pvt. Ltd, would be counted as part of their deposit mobilization targets for the year ending March, SBI officials said. Societe Generale SA of France holds a 37% stake in SBI Funds Management.

“The bank has appointed cross-marketing officers to sell mutual funds in every region. The MF mobilization will be considered as a part of the bank’s annual deposit mobilization targets," said a senior official at the bank on condition of anonymity.

The move followed an October review that revealed the bank had been lagging behind its fund-raising target. The reason: Branch managers had not been ready to devote time and effort to mutual funds because they had been preoccupied with mobilizing deposits.

“The process has now picked steam and we are hopeful of achieving the target," said an official at the SBI Funds Management.

The move is significant as many mutual fund distributors are withdrawing from the space after their commission income shrank dramatically following an August ban imposed by the market regulator on entry loads, or the payment an investor has to make for purchasing units in a mutual fund. For equity funds, the entry load was 2.25% of the investment.

Also See Top Mutual Funds (Graphic)

SBI Funds, although it is still among the top 10 fund houses in terms of assets under management, has been steadily losing market share. The fund house fell three notches to the eighth rank in December from the fifth place a year earlier in terms of assets under management.

The mutual fund arms of SBI’s younger private sector rivals ICICI Bank Ltd, HDFC Bank Ltd and Kotak Mahindra Bank Ltd have larger assets under management despite having leaner branch networks.

SBI Funds had Rs37,900 crore under management in December, when the country’s 38 fund houses had a combined Rs7.94 trillion of assets. Reliance Capital Asset Management Co. Ltd is at the top of the list with Rs1.19 trillion under management.

SBI Funds is one of the country’s oldest fund houses, having been around for two decades. Yet, it has not fully leveraged State Bank’s large branch network. With 11,800 branches, the state-owned bank has the largest reach among Indian lenders. The investor base of over 5.8 million is far less than that of UTI Asset Management Co. Ltd, which said on Sunday that it had become the first mutual fund house in India to cross 10 million investor accounts.

Most banks, both state-owned and private, have now become selective about mutual funds they sell as fund houses can no longer charge investors to pay distributors. Most prefer to sell the funds offered by their own subsidiaries.

Sanjay Sinha, chief executive officer of DBS Cholamandalam Asset Management Co. Ltd and formerly a fund manager at SBI Funds, said third-party distribution by banks has taken a hit following the Securities and Exchange Board of India (Sebi) move to scrap entry loads.

“While some state-run banks are planning their own fund houses, others who have their subsidiaries in the business are following protectionist policies," Sinha said.

The strategy is key to the survival of the subsidiary. A McKinsey Inc.report in August on the business impact of regulatory changes underlined the importance of owning a distribution channel. “The importance of proprietary channels will increase as bank owned AMCs (asset management companies) look to leverage captive infrastructure," it said. The report added that the ability to leverage proprietary channel infrastructure and reach will provide a significant advantage to AMCs.

“Additionally, the AMCs will work more closely with proprietary channels to provide end-to-end marketing support in form of joint target setting and go-to-market strategies— product development, customer segmentation and enhanced training and sales support," the McKinsey report said.

SBI Funds manages equity funds worth Rs18,000 crore. If it succeeds in mopping up Rs10,000 crore of equity funds this year, it will end up managing the second largest pool of equity funds, behind only Reliance Capital Asset Management. Roughly a quarter of the total funds managed by the industry is in equities.

SBI Funds serves its investors through a network of 260 points of sales and service. Apart from branches, the bank has 8,500 automated teller machines, or ATMs, and other electronic channels such as Internet banking. No other AMC can rival SBI in terms of its distribution muscle.

But this network is not readily usable. According to Sebi rules, distributors need to be certified by the Association of Mutual Funds in India to be able to sell mutual funds. So SBI officers are also engaged in training and getting staff qualified to sell mutual funds.

“They will organize and co-ordinate various activities like training of bank staff, investor education and awareness efforts besides the selling," the SBI official said.

Graphic by Yogesh Kumar / Mint


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