Public banks in a fix over Sebi's higher networth norm for AMCs

Public banks in a fix over Sebi's higher networth norm for AMCs

Public sector banks (PSBs) are in a dilemma over raising the networth at their mutual fund arms, as deploying more capital could go against a diktat issued by the finance ministry and the Reserve Bank of India (RBI) directing lenders to predominately focus on their core operations.

Essentially, the mutual fund business of banks can be categorised as a 'non-core business'.

Earlier this year, capital market regulator Securities and Exchange Board of India (Sebi) had raised the minimum net worth of asset management companies (AMC) from Rs 10 crore to Rs 50 crore.

At present, four PSB-sponsored AMCs have networth of less than Rs 50 crore. The higher networth norms are likely to hit five state-owned banks.

These include Punjab National Bank (PNB) and Vijaya Bank, who are promoters of Principal Mutual Fund, Bank of Baroda which is the sponsor of Baroda Pioneer Mutual Fund, Bank of India, which operates BOI AXA Mutual Fund and IDBI Bank, which runs IDBI Mutual Fund.

Although, Sebi has given AMCs three years to comply with the new norms, officials at PSBs said that they have already started consulting the RBI seeking more clarity on the issue.

The finance ministry has asked PSBs to review their exposure towards non-core operations like mutual fund and insurance. The move was aimed at conserving capital at a time when stricter Basel III norms are to be implemented.

Under the new directions, state-owned banks need to take approvals before investing in any of its non-core businesses.

"As a practice we approach our shareholders with any information that could potentially impact our business. After Sebi's decision to enhance networth we have informed our banking affiliate. So far, we haven't asked them for funds as the regulator is yet to issue a circular to the effect," said a CEO of a state-owned bank sponsored mutual fund, asking to not to be quoted.

Meanwhile, according to industry players, public sector banks have already apprised the central bank over potential problems they could face going ahead while meeting Sebi's higher capital norms for AMCs.

"RBI hasn't prohibited us from investing in our non-core businesses but want us to focus on core banking activities. We have kept the central bank in the loop and will take the necessary permissions when it is required," said senior official at IDBI Bank.

Industry players said that the additional capital required to meet the networth norms might have to come from banking sponsor as most foreign partners are wary of committing more capital. A strict regulatory regime and no profitability has forced several foreign players to exit the AMC business in India.

Some fund houses have even approached Sebi asking it to rethink the higher networth norm citing difficulties.

Sebi had raised the networth requirement to ensure only serious players stay in the business. Out of the 43 Sebi-registered AMCs, about 15 have a networth of less than Rs 50 crore.

BS
Thanking you

Regards,

Rajesh Kumar Kathpalia ¤ SMC Global
17,Netaji Subhash Marg,Daryaganj,
New Delhi-110002 Mobile No 9891645052
Email Id: rajesh.ipo@smcindiaonline.com


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