Wealth mgmt: Kotak says separation will not solve mis-selling

Last week, RBI suggested that banks need to separate their wealth management units into separate companies

There is no need for banks to spin off wealth management businesses into separate subsidiaries if they follow the best practices, Kotak Mahindra Bank vice- chairman and managing director Uday Kotak said today.

"My view is that if you run it properly as a separate division with clearly identified process, it works. And the way we are thinking about is: do whatever is right for the customer and everything else follows," he told reporters on the sidelines of a bank event here.

Kotak Bank's wealth management vertical is one of the strongest in the industry.

Last week, the RBI in a draft guidelines suggested that banks need to separate their wealth management units into separate companies in its bid to contain mis-selling of financial products.

The Reserve Bank had said, "Banks may conduct all wealth management services activities. Either from a separate subsidiary or through a separately identifiable department or division set up for the purpose," RBI said in its draft guidelines on Wealth management/marketing/ distribution services offered by banks on June 28.

It said to address the issue of conflict of interest arising from the single entity conducting both the activities of advisory or fund management as well as marketing, it is proposed to segregate the two functions.

"Banks should put in place sound internal control mechanisms and a system of checks to address risk management," the draft guideline said further.

Kotak said the spirit of what the RBI is trying to do is essentially saying that make sure that the financial products are appropriate to the customers.

On new bank licences, he said it's always good to have competition because it spurs existing players.

On the high CAD, Kotak said the policy focus should be on the overall macro stability needs to be the direction of policy to contain CAD.

On the RBI and government measures to contain gold demand, he said there has been a reasonable slowdown in gold demand in June, but to make this sustainable, "We need savers to become financial savers, who can move away from physical assets."

"Financial products sold properly is the way forward for banks and financial institutions to bring about culture of savings in the financial products and banning them.