Govt banks make a dash to start mutual fund business

Source:BS Reporter / Mumbai March 28, 2010, 0:29 IST

IDBI Bank and Union Bank are the latest entrants.

In less than 24 hours, two public sector players—IDBI Bank and Union Bank of India—announced their foray into over Rs 781,000-crore mutual fund (MF) industry, though both have taken different routes.

While IDBI Bank decided to go solo, Union Bank has partnered Belgian asset manager KBC. By doing so, Union Bank has followed peers such as State Bank of India, Bank of Baroda and Canara Bank that have tied up with foreign partners.

IDBI Bank announced the launch of its asset management business on Thursday, while Union Bank of India announced its entry on Friday.

Other than Union Bank of India, Bank of Baroda has a tie-up with Pioneer Investments, a global asset manager. Canara Bank has a joint venture with Robeco Groep NV of the Netherlands and, in SBI Mutual Fund, the partner is Société Générale Asset Management.

Most of the public sector banks forayed into the MF business in early 1990s, but could not compete with the private sector players once the sector was opened to them around the same time.

“You cannot expect a banker to run an asset management company. Different skill sets are required for it,” said Dhirendra Kumar, chief executive officer of Value Research.

Among the top 10 fund house in terms of asset under management, based on the Association of Mutual Funds in India’s February data, three are in the public sector, and among them, only SBI Mutual Fund is owned by a bank. Experts said initially the banks continued to focus on their lending business, but the rise of equity markets since 2003 led them to re-focus on the MF business.

“The launch of the asset management business is in line with the bank’s long-term vision to emerge as a leading universal bank. IDBI Bank’s established brand name and extensive branch network will enable our asset management company to grow at a fast pace and become a leading player in the business,” said Yogesh Agarwal, chairman and managing director, IDBI Bank, while launching the MF business in Mumbai yesterday.

Union Bank of India Chairman and Managing Director MV Nair said the current penetration level of asset management companies indicated the vast untapped potential. The fund house has a vision to be among the top 10 in five years. It is targeting an average asset under management of about Rs 12,000 crore in three years.

Kumar of Value Research said the huge distribution network of public sector banks through their branches was an advantage which would be difficult for a standalone asset management company to match.