Person from SBI would appreciate ground level realities

Dinesh K. Khara of SBI MF talks of harnessing SBI's distribution strength

Why is SBI Funds Management Ltd, India’s sixth largest fund house in the 10.60 trillion Indian mutual funds industry (as per October-end numbers), not the largest? Its parent, State Bank of India (SBI) is India’s largest lender with 16,081 branches as on September 2014; and 38.2% of those are in rural areas. Can SBI’s mutual fund (MF) arm find a way to harness its parent’s distribution strength and use the currently rising markets to its advantage? Dinesh K. Khara, managing director and chief executive officer, SBI Funds Management, replies.

It’s been one year since you joined SBI MF. Your predecessor turned around the fund house’s performance after it went through a slump. What would be the focus areas for you?

I would like to consolidate further. Our processes are in place. For us it is important that our research and fund management teams are thorough. What is next for us? I would say consistent returns over a period of time. That is the only way to maintain investor confidence.

We want to use technology to distribute our products. And our distributors could use such applications to their advantage to penetrate the market. An analysis of investor behaviour reveals that they are more interested in using online channels to complete their investment-related transactions.

Having worked in the bank for so many years and watched many customers having migrated to alternate channels, I feel the MF industry will see the same natural shift.

Abhay Aima, group head-equities and private banking group, third-party products, NRI and international consumer business at HDFC Bank Ltd, made an interesting comment at a seminar recently. He said that SBI should be India’s largest MF distributor, instead of HDFC Bank and a few others. He said that SBI has the potential to overtake all the largest distributors.

At the same time, your MF peers say that should be the largest MF, and not HDFC MF or ICICI Prudential MF. Is inertia pulling your MF or your bank back?

Abhay Aima’s views help us in introspecting and revisiting the distribution structure. We are taking steps to harness SBI’s branch potential.

SBI has also identified about 300 branches across the country to have a focused approach for distribution of all kind of products offered by their retail subsidiaries. This is over and above other branches that are marketing such products. They have also identified people who would man these branches. It’s a pilot project that started about a month or two back.

There will be a specific counter in all these branches responsible for selling SBI subsidiary’s products. The people in charge of these counters will be from SBI Life Insurance, SBI General Insurance and SBI Funds Management. Efforts are being made to create capacity at the branch level. It is an endeavour to ensure that the person selling these products must understand the products and must have the required conviction and confidence. All the subsidiaries are required to participate in training them; we’ll train the MF sales staff, the insurance companies will train the insurance sales staff, and so on.

We also don’t want to clutter the minds of such branch sales officials with a large number of products. We have accordingly focused on five products keeping in mind the risk appetite of the bank’s customers. We are offering SBI Magnum Balanced Fund, SBI BlueChip, SBI Magnum Equity, SBI Magnum Global and SBI Magnum Tax Gain funds, apart from our Dual Advantage and fixed maturity plan series.

An effort has been made to avoid offering high-risk products at such branches.

Being a large fund house, SBI MF has many products. A very large bouquet suits distributors but could end up confusing investors. Is the fund house consumer-centric or distributor-centric?

We are investor-centric and I would say that distributors also help us remain an investor-centric company.

The Securities and Exchange Board of India (Sebi) also doesn’t allow us to launch similar products. We launch a new product only when we see a gap in our offerings.

But many fund houses have launched closed-end funds so far this year, as have you. They say closed-end funds are different from open-ended funds.

True, we, too, have launched closed-end funds—Equity Opportunity fund Series 1 and 2. This fund has a unique theme. The government has been framing new policies that we feel will benefit companies over the next three years. These three-year closed-end funds aim to tap the growth potential offered by such companies. On completion of the closed-end period, we will offer options to the investor that are in line with the then prevailing economic situation.

The chief executive officer (CEO) of SBI Funds Management always comes from SBI, such as yourself. Has the time come to instead look at homegrown talent within the fund house for future CEO appointments? Even UTI Asset Management Co. Ltd has selected its latest managing director from outside.

When it comes to homegrown talent, we have given adequate opportunities to people to grow in this organization. And being an SBI-promoted fund house, since it has been riding on the bank’s distribution strength and network, it probably works well if the person comes from SBI because then the acceptability in the distribution network would be much better as compared with someone who could be from the fund house itself.

Also, the person who comes from SBI would very well appreciate the ground level bank realities as well. So, to that extent, I believe it brings value. We have to see that this fund house grows.

And since people in the MF come from all walks of life, I don’t see any reason why we should debar a person who comes from SBI.