High Fd Rates Eat Into Sub-Brokers' Incentives

The sops which went up in some cases to over five per cent of the size of the deposit is now coming down to the Reserve Bank of India-approved one per cent for a one year deposit, according to sub-brokers active in the fixed deposits market.

Most of the finance companies were paying incentives to intermediaries over and above the RBI statutory rates of 1 per cent for a one year deposit, 1.5 per cent for 2 years and 3 per cent for a three-year deposit.

This was on account of the fixed deposits having a cap of 15 per cent earlier due to which the finance companies had to offer high incentives to the intermediaries to get retail funds into their FDs.

 

Apart from cash incentives, the investor was also being offered gifts.

Now since the finance companies can offer rates higher than 15 per cent officially, the intermediaries seem to be left high and dry. The impact has been larger on the sub-broker community as compared with the main brokers because the main brokers were in any case passing on most of the incentives to these sub-brokers or to the investor directly, said a finance company official.

Of the 4-5 per cent which was being offered to the main broker as incentive, only 0.5 per cent was being retained by the main broker and a larger amount was passed on to the sub-broker.

While the amounts being paid to the investor has gone up or remained at the same levels as it has got build into the higher rate being offered officially by the finance company, the sub-brokers stand to lose.

Though brokers and sub brokers are of the opinion that the finance companies

will find it very difficult to garner deposits without the help of the broker community,

officials of finance companies state otherwise.

Reliance Capital has already decided to do away with the services of intermediaries and go straight to the investor for its recently launched FD programme.

The company has offered rates of 20 per cent for a five year fixed deposit and is expecting to garner approximately Rs 2000 crore through the fixed deposit route this year.

Companies were forced to pay higher rates due to the push from broker's side, earlier. Now however, the pull from the investor will be more due to the higher rates of interest being offered, said a senior official of a finance company, which has decided to cut down on the incentives being paid to the sub-brokers.

Some of the finance companies said with a reduction in cost of funds to intermediaries and due to a lower statutory liquidity ratio (SLR) requirement for companies meeting central bank stipulations, it is expected that there will be a lowering in the cost of funds across the board for various activities undertaken by a finance

company.

Apart of the money earlier being spend on intermediary sub-brokers will now be spent on advertising the new fixed deposit rates.

Since earlier every finance company could officially offer only 15 per cent, there was no motivation to advertise, stated one finance company head.