India’s public sector banks (PSBs) have continued to lag behind their private peers when it comes to selling mutual funds (MFs) to investors. Despite having a huge branch network across the country — more than half of which are in the rural and semi-urban regions — state lenders appear not excited to do a serious MF distribution business.
It is worth to note that the MF sector has been attracting a lot of investments from the country’s hinterland. The inflows are at historic highs and so is the burgeoning investors’ base. However, this is not being adequately captured as a business opportunity by the behemoths of the banking sector.
On the other hand, the private lenders are showing consistent growth in their earnings from MF distribution, year-on-year (y-o-y). It is despite the fact that private banks do not enjoy the vast branch network which their peers in the public sector possess.
For instance, the total earnings of State Bank of India (SBI), Canara Bank, Bank of Baroda (BoB), Punjab National Bank (PNB), Bank of India (BOI) and Union Bank of India (UBI), put together, from MF distribution stood at Rs 223 crore in financial year (FY) 2016-17. In terms of branches, these six banks have nearly 45,000 branches on the collective basis.
On the other hand, private banks like HDFC Bank, ICICI Bank, Axis Bank and Kotak Mahindra Bank (KMB) with a collective branch strength of 14,200 — less than one-third of what state lenders have — earned commissions worth Rs 1,125 crore by way of selling mutual funds.
“This is bizarre, if I may say so. If private players can do, why not we? It is not so that we have not raised these issues with our promoters. Our parent has a great reach and I believe if this is adequately leveraged we can get quite a large flows which will benefit us as well as the industry,” says a chief executive officer (CEO) of a fund house sponsored by a public lender.