RBI move to allow AMC license to IndusInd Bank could open route for para-banking activities by banks
Aug 20, 2024
Synopsis
The Reserve Bank of India's approval for IndusInd Bank to establish a wholly owned asset management company (AMC) could set a precedent for other banks to create similar para-banking subsidiaries. This move follows previous RBI decisions allowing HDFC Bank and ICICI Bank to increase stakes in their insurance subsidiaries.
The Reserve Bank of India’s (RBI) move to allow IndusInd Bank to set up a wholly owned asset management (AMC) business, could pave the way for other banks owning such para-banking businesses on which the regulator has shied upon so far.
Last year RBI had allowed HDFC Bank and ICICI Bank to increase stakes in their insurance subsidiaries above 50%. Experts say that this could act as a precedent for other banks setting up such subsidiaries that create fee income for banks pushing up future profitability.
“This the first instance of RBI allowing an existing bank to set up a fresh AMC business as a subsidiary excluding legacy subsidiaries of old licence holders,” said Param Subramanian, Analyst at Nomura. “It remains to be seen if this sets a precedent for the rest of the sector – as this can have positive ramifications for smaller banks that have not thus far been able to set up such subsidiaries.”
It was also be interesting to watch if the regulator extends such relaxations to owning other para banking businesses like insurance, broking, wealth management to existing bank licensees, experts said.
So far the RBI has not been forthcoming in allowing banks to incrementally own non-banking businesses except allowing legacy businesses of older banks to continue.
RBI’s new private bank licence norms emphasise NOFHCs (Non-operative Financial Holding Company) as the preferred structure for fresh licence applicants having other group businesses.
On Monday, Indusind Bank had informed the exchanges that it had received RBI approval for setting up a wholly owned asset management (AMC) business. This will the private lender’s first direct para-banking subsidiary businesses.
“RBI has accorded its approval to the Bank for setting up a wholly owned subsidiary to undertake asset management business of Mutual Fund along with infusing equity capital in the said asset management subsidiary,” IndusInd bank said in a statement.
After this license the bank can generate revenue as a manufacturer of mutual funds. Until now, it has only acted as a distributor.
In an interview with ET last year Sumant Kathpalia the MD of the lender had expressed his interest in foraying in non-banking businesses.
“IndusInd Bank will look like a bank which has domain specialisation,” he had said. “We will also be in para-banking activities, in three areas of asset management, non-life insurance and broking.”
In April this year, IndusInd International Holdings Limited the promoter of IndusInd Bank has acquired 60% stake in Invesco
Asset Management India Limited.
In the fiscal year gone by IndusInd has generated only Rs 50 crore via distribution of mutual funds, PMS (portfolio management services) and other alternative products.
As per a Nomura analysis this is significantly lower than Rs 540 crore each earned by ICICI Bank and Axis Bank. Kotak Mahindra Bank had too earned a fee of Rs 280 crore from mutual fund distribution in FY24.
[The Economic Times]
