With profitability of public sector banks threatening to take a hit in wake of RBI hiking repo rates and cash reserve ratio, they are in a jiffy to strike deals with brokerage firms to open up new avenues for boosting their fee-based income and also increasing their low-cost deposit base to offset the impact.
More than half-a-dozen public sector banks are following the footsteps of their market-savvy private sector peers, like ICICI Bank and HDFC, to ink deals with broking houses to offer online trading platforms and other equity related services to their huge customer base.
The largest among the PSU banks, the SBI has already tied-up with Ramdeo Agarwal fame Motilal Oswal Securities to leverage its technology-driven branches for generating fee-based income, offer greater convenience to its customers and shore up its bottom line.
Agreeing that the recent announcements of the RBI would pinch the profitability of the banks as it would further send the interest rate spiralling northwards and thus slow credit off take, a high ranking SBI official, not willing to be quoted, said, “We are initiating big moves to provide online trading facilities for our customers in all the district headquarters of Bihar and Jharkhand.”
The facility would be available for SBI customers in five major centres in the two states in February itself. Then it would be gradually extended in 33 branches, in the first phase, only to be scaled up to 60 branches in the days to come, he said.
“It is win-win situation for both parties involved,” said Krishnanand Narnolia, the regional franchisee of Motilal Oswal Securities.
Punjab National Bank, too, has also forayed in the broking domain to scale down its over dependence on interest income and has tied-up with IDBI Capital Market Services, the providers of internet based trading platform –paisabuilder.in, to offer trading in securities.
“We have the service in New Market branch and plan to introduce it in Gandhi Maidan branch. The idea is to augment the revenue generating potential of the branches, making them a one-stop-shop offering savings bank account, demat and online trading facilities,” said Shekhar Verma, senior manager (marketing), PNB.
The benefit for the banks comes at no extra cost as they had already computerised their operations and many branches are linked with core banking solution. While the broking firms provide the support for online trading facility, the banks are chipping in with saving, current and demat accounts.
This allows them to have a large amount of floating funds at their disposal, besides a huge fee-based revenue inflow by way charges, explained a banker. No wonder then that the bankers are falling head over heals to tap this sector at a time when the capital market is in the midst of a secular bull run.
The Bank of India has also tied-up with Asit C Mehta Investment Intermediates Ltd, which recently opened a franchisee office in the State Capital. Oriental Bank of Commerce has joined hands with ILS Investmart.
Of the lot, Union Bank of India is the leader as it had struck a deal with has SSKI Securities way back in November 2005.
The trend has precedence in the efforts of small brokers, who were forced to opt for selling mutual funds and even insurance schemes, to remain afloat in the wake of the entry of big corporate houses in the business and subsequent lowering of broking charges.
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