Baroda, Union MFs bank on mergers to increase their market share

AUM of both companies declined in September quarter

The smaller-sized fund houses — Baroda Asset Management Company (AMC) and Union AMC — which are yet to gain a significant foothold in Rs 27-trillion mutual fund (MF) industry, are looking to increase their market share as bank mergers give their sponsor banks access to a wider branch network. 

At the end of the September quarter (Q2), Union AMC’s average assets under management (AAUM) stood at Rs 4,089 crore, while that of Baroda AMC stood at Rs 10,676 crore. 

Compared to the corresponding period last year, Union AMC’s AAUM was down 16 per cent, while the AAUM for Baroda AMC was down 21 per cent.

Both fund houses have lost assets over a period, even though the MF industry has managed an overall growth of 6 per cent, despite headwinds from regulatory changes, and the weakness in debt and equity markets. 

“The bank merger gives us access to a wider customer base and more importantly a more geographically diversified presence. While Dena Bank is more strong in western parts, Vijaya Bank has a stronger presence in the southern parts,” said Anthony Heredia, chief executive officer of Baroda AMC.

According to those privy to the development, the merger is an important one for the bank, given it will help it source a larger part of its revenues through fee-based income streams.

“The idea is to find ways to increase fee-based income without incurring any further significant costs. This is where the bank mergers will come into play as they will help us in quickly plugging the gaps in the system, and leverage our network,” said an official of Bank of Baroda. 

For the relatively small-sized Union AMC, adding to its sales team would be key to leveraging the enhanced distribution network.  

“The main benefit will be that the number of bank branches will double post-merger. We will be able to access much larger number of locations. Andhra Bank is stronger in Telangana and the Andhra region, whereas Corporation Bank has a strong presence in Karnataka,” said G Pradeepkumar, chief executive officer of Union AMC. 

Pradeepkumar added the AMC would need to add more people to its sales force to cater to this widened distribution presence. Both fund houses will get access to a much wider customer base due to existing relationships of the banks that are being subsumed.  

MF participants say there remains a huge scope of untapped opportunity for growth, as the market remains underserved even with 44 players currently operating. The penetration of MFs in India stands at 11 per cent of gross domestic product, which is significantly lower than other developing economies such as Brazil (59 per cent) and South Africa (49 per cent).

According to a report by the industry body Association of Mutual Funds in India, the industry has the potential to reach the Rs 100-trillion mark; 3.7-times from the current levels of Rs 27 trillion.

“Fund houses of all sizes have a huge opportunity in front of them, given the under-penetration of the domestic MF industry,” said the chief executive officer of another fund house.