PSB woes spark MF rethink

Except SBI, all other 'PSB sponsored' MFs figure low in pecking order of assets under management

The diktat to focus on core operations and the surging strain on their balance sheets may compel public sector-sponsored mutual funds to reduce or sell their stakes in the business, believe experts.

These include fund houses like Union KBC, BOI Axa MF, IDBI MF, Baroda Pioneer MF, Principal MF and Canara Robeco. Punjab National Bank, Bank of Baroda, Canara Bank, Bank of India and IDBI Bank posted net losses of anywhere between Rs 1,736 crore and Rs 5,367 crore in the quarter ended March 2016.

In 2014, the finance ministry had asked public-sector banks to review their exposure to non-core operations such as mutual funds and insurance. The move was aimed at conserving capital when stricter Basel-III norms were to be implemented.

“Given that the balance sheets of banks are under strain, it may make sense for some of them to sell stakes in non-core businesses,” said Manoj Nagpal, chief executive officer, Outlook Asia Capital. He added the banks were unlikely to receive a good price for their mutual fund business because of their small asset base.

Except State Bank of India, all other public sector bank-sponsored mutual funds figure low in the pecking order of assets under management, with a kitty of less than Rs 10,000 crore.

Public sector bank-backed fund houses, however, indicate it is business as usual. “There is no evidence to show there is pressure on public sector banks to divest. Most stake sales or exits have happened in the private sector. Mutual funds are an asset-light business and maintaining a net worth of Rs 50-100 crore will not be onerous for public sector banks,” said G Pradeepkumar, chief executive officer, Union KBC MF, whose foreign partner KBC recently exited the joint venture.

“There is no discussion on any stake divestment. Bank of India and AXA Investment Managers are committed to building the business and we continue to receive the bank’s support,” said Sandeep Dasgupta, chief executive officer, BOI AXA Investment Managers.

“Bank of Baroda has plans to significantly ramp up its third-party distribution and the asset management company will be a natural beneficiary,” said Antony Heredia, chief executive officer, Baroda Pioneer MF.

Canara Robeco MF, IDBI MF and Principal MF did not respond to questionnaires sent to them.

Despite the insistence on banks backing their respective mutual fund businesses, nearly all these fund houses have been lying low for the past year, if new fund launches are anything to go by.

According to Value Research, Baroda Pioneer, Principal MF and BOI AXA launched just one debt fund each since the beginning of 2015.

Canara Robeco and Union KBC hit the market with one equity closed-end fund each, while IDBI MF has not come out with a single new scheme in the same period.

According to Nagpal, since most public sector banks own both mutual funds and insurance companies, any stake sale is likely to occur in the latter first because of its capital-intensive nature.

Recently, Bank of India reportedly sold an 18 per cent stake in its life insurance venture Star Union Dai-Ichi Life Insurance to Japan's largest life insurer Dai-Ichi. New insurance norms allow foreign partners to raise their stakes to 49 per cent.

“The stake sale has no bearing on the mutual fund business.

“In fact, we have received approval from both shareholders to infuse additional capital in the business for 2016-17,” Dasgupta said.

One of the other perennial criticisms facing bank-sponsored AMCs is that they have not been able to use their branches and personnel for distributing MF products due to the propensity towards traditional products. Pradeepkumar admits that PSU Banks have historically not had a dedicated sales force for distribution of third party products but insists that banks have started creating a dedicated vertical for this purpose in the last few years. "Given their reach especially in smaller towns, PSU Banks can be the catalyst for the next wave of growth in the industry," he said.