PSBs lag private peers in embracing MF sales

Fail to catch up, despite vast networks

India's public sector banks (PSBs), despite a vast network of branches, continue to lag behind private peers in selling mutual fund products to investors.

Poor earnings from sale of mutual fund products is a clear indication of their inefficiency. And this comes at a time when investors' awareness about mutual funds is on the rise, given the significant growth in flow of money from retail clients.

For instance, State Bank of India (SBI), the country's largest lender, with nearly 16,800 branches across the country, could earn Rs 62 crore only by way of commission from sale of mutual fund products in 2015-16.

On the other hand, private lenders HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank together pocketed Rs 740 crore in the year. Interestingly, the total network strength of these four private banks is 13,200 branches, 20 per cent less than that of SBI and a fourth of all the branches of top PSBs.

Top three banks in terms of commission payouts from sale of mutual fund products in 2015-16: HDFC Bank, with 4,520 branches, earned Rs 261 crore, ICICI Bank, with 4,450 branches, Rs 170 crore, and Kotak Mahindra Bank, Rs 166 crore.

All these banks have their own mutual fund houses. Other PSBs such as Bank of Baroda, Punjab National Bank, Union Bank of India, Bank of India, and Canara Bank, with a collective branch strength of over 27,000, could collectively pocket only about Rs 30 crore. These banks, too, have their own mutual fund houses. "This is a serious problem. We have raised this issue quite often with our parent but nothing concrete has been achieved so far. We have failed to leverage our parent's strength and are dependent on other national distributors, including private banks, to push our products," says the chief executive officer (CEO) of a PSB-owned mutual fund house, who asked not to be named.

He added that state lenders were busy pushing the government's intiatives - be it Pradhan Mantri Jan-Dhan Yojana or Jan Suraksha Yojana. "If the same enthusiasm had been been shown for mutual funds, the scenario would have been quite different. It's a problem of mindset and can't be rectified in a short time. And opening a mutual fund branch everywhere is not viable as this business runs on thin margins," he said.

Experts say PSBs have a long way to go before they catch up with their private counterparts.

Kaustubh Belapurkar, director (fund research) at Morningstar India, says, "That ethos (to push mutual funds) will take some time to come among PSBs. The proportion of sales of mutual fund products coming through their branches is minuscule as it is not their focus area. I believe it calls for a training of employees to help push funds."

Banks as national distributors are an important part of the distribution channel for fund houses. Since banks are much more trusted by customers, the vast branch network needs to be put to use. It would not only help penetrate mutual funds among population but will also help in better financial inclusion which will be in the interest of all the stakeholders.