Now, govt banks out to manage wealth

In a bid to ensure that high networth individuals (HNIs) stayed with them, public sector banks, including State Bank of India (SBI), Union Bank of India, Bank of Baroda (BoB) and Bank of India (BoI), have been climbing on the wealth management bandwagon in recent months.

The country’s largest bank, SBI, has decided to set a cut-off of Rs 60 lakh for any individual to be called an HNI. This would qualify nearly 200,000 clients for specialised services such as relationship managers. Armed with specially-designed software, which is being tested, the manager will ensure that the customer does not have to visit a branch. And, in case someone does have to visit one, the plan is to have special sections with five-star ambience. While all this is still being finalised, the bank has kicked off operations in a small way with focus on the affluent section. So, customers with over Rs 5 lakh in the bank are eligible to avail themselves of this service. The bank is currently offering this service at 502 branches through 1,100 customer relationship executives. While SBI’s liability group, personal banking division and the new business group are working on the project called ‘Attracting HNIs’, Bank of India is contemplating on how to enter the space. “It will happen in due course of time. We have not yet started anything formally, but it is one of the options being considered at the moment. It could be a subsidiary, a joint venture or a separate department altogether. Discussions are at different stages and we should be able to come up with something in a year’s time,” said BoI Chief Financial Officer VKR Aggarwal. However, Union Bank and BoB have opted for tie-ups. The former recently launched its wealth management services along with Wealth Advisors, a Chennai-based company, to offer wealth management for its customers in south India. For customers in Mumbai, it has tied up with Edelweiss Securities. Under terms of this tie-up, Edelweiss will offer a whole range of wealth management products and alternative investment options, such as structured products, real estate funds and art, to Union Bank’s HNI clients. It will also provide them equity and debt investment options. The minimum ticket size for such investments is Rs 10 lakh.

BoB’s wealth management foray is so far limited to only United Arab Emirates (UAE). However, unlike the foreign banks and some domestic players, the Indian public sector banks would not offer services such as succession planning. “In reality, art investment and a lot of other services that they talk about are all on paper. Succession planning is essentially advisory and the family has to take the final decision. So, as a bank, we are not in a position to advise our clients on such sensitive issues,” said a public sector bank executive, who spent several months trying to understand the services on offer.The key reason for public sector players entering the wealth space was to ensure that well-off customers did not move away to private banks that offered services such as relationship manager. In addition, they realised that branding the well-off as HNIs with a low cut-off made some clients feel special. The biggest advantage was the focused approach to cross-sell. For instance, SBI’s mutual fund or insurance arm can now sell the group’s products, which was not the case earlier. What has further prompted the move of the public sector banks to enter wealth management is the recent Sebi ban on entry load for distributors of mutual fund schemes. The ban hit these banks hard as they were quite active in distribution of mutual funds’ schemes. Although, government banks are still distributing mutual fund schemes, the ban has eroded their fee-based income. Now these banks are getting only 0.75-100 basis point upfront commission from fund houses compared to the 2.25 per cent load earlier. Hence, some of these banks are planning to offer advisory and charge clients for the same. Sebi mandates distributors and advisors to charge clients for advisory services. Experts said that public sector lenders’ entry into wealth management might offer some competition to private and foreign banks that have been dominating the space. Government banks might have an edge over the private and foreign players because of their large deposit base, they added. Barclays Wealth Chief Executive Officer (CEO) Satyanarayan Bansal said, “Private banking in India is still in early stages of growth. There is enough potential for players to come and expand in this market. It will also depend on the quality of services and products offered by various players.”