S Sridhar, CMD, Central Bank of India and chairman of the National Housing Bank, talks to Moneylife editors Sucheta Dalal & Debashis Basu on how he plans to shape the future of CBI. This is the final part of a three-part series
Sucheta Dalal & Debashis Basu (ML): Central Bank of India has a history of strong trade unions. What has been your experience in dealing with unions?
S Sridhar (SS): There is a way of handling unions. First of all, they are white-collar people. There are many people actively working in the unions, who would have been in the top management of banks, if they had taken their promotions. They are bright people. One has to take them into confidence and ensure that they feel they are contributing. Generally, I have tried to be fair and transparent and show that there is no personal axe to grind. We have said that there will be zero tolerance for anything mala fide, but I had issued a written circular that as long as there is a bona fide business judgement we will protect you. That is a promise I have kept; but when there are mala fide actions we have even dismissed people. So I have had no problems at all. There may be some minor irritations or issues, but that is to be expected.
ML: What are your priorities at Central Bank?
SS: The priority is to make Central Bank a modern bank - it has been lagging over the years. When banks were nationalised, it was the number one bank after State Bank of India but over the years it (has) slipped. The main reason was not enough attention to human resources. It is a bit of an old-age home. The average age here is 53.
ML: Why is Central Bank an exception, if they follow the same recruitment policies?
SS: Somewhere in the last 10-12 years, other banks realised this and took corrective action. Bank of Baroda, Canara Bank, Punjab National Bank - all did something about the skewed age profile, but Central Bank couldn't do it because of union issues, etc. A cardinal flaw was that Central Bank wasn't taking in direct recruits - that is why, in every category, there is hardly anyone below 50. This brings with it a set of issues - risk aversion; focus on family and refusal to be transferred away from the hometown. Also, there was no attention to work processes and practices. So that is my first priority. Technology and human resources are my top priority - in the process I have also restructured the bank by creating certain business verticals. I created corporate verticals and large corporate branches. Central Bank has always had a good relationship with customers and we also have several top customers, but over time, our share of their wallet had decreased significantly. The corporate sector has been a big thrust area - but they are good for the balance sheet but not the bottom-line which has to come from retail and SME (small and medium enterprises). SME has been good last year with 53% growth - that has to be maintained. Retail is going to be the big thrust area this year. In terms of technology, we have all the products in place - credit cards, debit cards, ATM cards, we are also ready with mobile banking, Internet banking, SMS alerts, etc. We now need to roll out what we have, but that is the challenge. We are rolling out ATMs in a big way, by 1st September (we) will have 900 and by December we will have 1,800 ATMs all over. By 30th June next year, we will have 3,000 ATMs in place. I think that is very important to attract young people and it is especially good for us, given the age profile. Getting younger people back is a priority, because they are the ones who have the money to spend. One thing in that direction is that we are official bankers to the Commonwealth Games; we want to bring the young, sporty image to the bank. We are also getting into our centenary year at the end of December.
Every day, my phone spews out text messages that promise me stocks that will reach for the skies, insurance products that give me usurious returns and freebies like gold coins. However, I am not biting
"Will you walk into my parlour, said the spider to the fly,
I have many curious things, to show you when you're there."
"Oh, no, no," said the little fly; to ask me is in vain,
For who goes up your winding stair, can ne'er come down again."
I keep getting text messages on my phone (I have registered in the "Do Not Call" Registry long ago) offering me really tempting investment products. Two days ago, I got one, which reads as under:
"BAJAJ ALLIANZ: DEPOSIT 8800/Yr or 5000/ Half Yr for 3 Yr July 20, Get FREE SPOT 1gm GOLD COIN, Approximately 52800 at 5 Yr, FREE PENSION PLAN, SAVE TAX. CAL: 9840150809"
Of course, I have not corrected this message for grammar, but the arithmetic is very interesting. The return is close to 36% p.a.! Bajaj Allianz must be a fantastic money manager.
But I am a born sceptic. So, I will pass this offer. Alas, no one in the mutual fund industry promises me this return. I do not get any text messages from any mutual fund agent promising me this kind of returns. Other than Bajaj Allianz, I also get similar messages with almost identical numbers, citing LIC. The moment I can spare this amount, I am going to invest in a Bajaj Allianz product. In addition, I will get a gold coin! I wonder if I have to pay any tax on it or would I be asked to pay up on account of TDS?
I also wondered at the other fantastic thing. I could either pay Rs8,800 every year or Rs5,000 every half year, with the same end result! So, the investment option has to be fantastic.
With these returns assured by Bajaj Allianz, surely other insurance companies cannot be far behind. Then why are they protesting about offering a guarantee of a measly 4.5% annual return on pension products? Then a thought struck me. Maybe they want to have a guaranteed rate that is much higher, given that the offer to me was at a handsome 36%.
I also think that in my younger days these insurance products were not around at all. Here I have HDFC Standard Life promising me that I can be an independent person in my old age, if they take care of my money. I wonder how they can do so, given that they have been around for less than 10 years. But then, I think, it is only an advertisement and if there was anything funny, IRDA would not have permitted it. In my days, LIC would only give guaranteed returns of around 8%-9%, post tax. Now, all of them have moved to much higher numbers, though these text messages (Insurance is the subject matter of solicitation) give me hope that they can give me great returns.
Each day, the phone brings forth text messages that promise me the riches. Stocks that will multiply in price, insurance products that give me usurious returns and many freebies like gold coins, etc. I have resisted so far because of age, lack of surplus money to gamble and my innate scepticism. Wonder how many people respond to the messages and enjoy these returns.
It would be nice if any of our readers can tell me if I should give my money to the agent who sent me the text message. And I wonder if either Bajaj Allianz or IRDA can confirm the numbers, so that I can also join the elite club that can make so much returns. In case the numbers are not okay, will IRDA step in and do something? I do not expect the insurance company to do anything, because its job is to sell.
The number of cheques released by AMCs to mutual fund distributors is dwindling as well as the number of active IFAs.
The sweeping changes introduced by market regulator Securities and Exchange Board of India (SEBI) in the mutual fund industry are still showing their after-effects. According to sources, two years back, some 39,000-odd monthly cheques were issued by asset management companies (AMCs) to pay upfront commission to distributors. In 2010, this number has plunged to around 9,000-10,000. Upfront commission is released on a monthly basis while trail is paid quarterly. A distributor gets upfront commission when he acquires new business while trail is paid to service the existing client. Currently 0.25% is paid as upfront commission and 0.50%-0.75% is paid as trail depending on the fund house.
“The number of payments received through the electronic clearing service (ECS) as well as cheques has dropped. People either wanted to consolidate or leave the business. People who have decent assets under management (AUM) are undeterred. New people are not joining. The general perception is that this business is not as remunerative as it used to be for a new person to join. This is because of SEBI’s misplaced perception that there is no role of an intermediary,” said a top official from a leading fund house, preferring anonymity.
“The number of cheque issuances among AMCs have dropped,” says a Mumbai-based distributor on the condition of anonymity.
However, registrar and transfer agent (RTA) sources say that the drop in cheques is primarily due to the ECS system. ECS facility was extended to distributors because of the delay and misplacement of cheques.
The following message doing the rounds in the mutual fund industry is a shocking revelation of the number of active IFAs. “What is the similarity between tigers and IFAs? Only 1,411 left. Thanks to SEBI.”
According to an official from a mid-sized AMC in Mumbai, the number of active IFAs bringing in new business has gone down to 1,200 from 5,000 in Mumbai alone. Around 80% of the business comes from metros like Mumbai, New Delhi, Chennai and Bengaluru. In Pune, hardly 40-45 active mutual fund distributors are working. In industry parlance, an active IFA is defined as someone who is still giving door-to-door service and bringing in new clients.
“Last year’s HDFC and Reliance Mutual Fund list showed 1,400 IFAs in Pune but now it has come down. I was submitting 30-40 new applications earlier, now I submit hardly 5-7 applications,” said a Pune-based financial planner.
The drop in the number of monthly cheques indicates that new business is not coming in and distributors are relying on the trail commission and past Systematic Investment Plans (SIPs). The industry added just 2,355 folios while equity funds lost 1.47 lakh folios in the month of July. A part of the money moved into debt funds.
Some distributors are now shifting their focus to allied financial services like general insurance and company fixed deposits, which offer decent commissions while others are completely changing their business model.
After the crackdown on upfront commissions, distributors are struggling to acquire new business. The commission does not even cover the cost of acquiring a client. Now, even the trail commission is not paid to a new distributor in the event of a broker change.
“I have been in this business since 19 years and have a decent AUM. Around 650 families are investing through me since 1994. I have incurred an operating loss of Rs1.75 lakh in the last one year because of ‘no load structure’. Investors are not ready to pay the advisory charges because a number of bank channels are offering free services. We are not able to cover the operating cost of our organisation. It is very difficult to survive. After a lot of convincing we get around Rs40,000 to Rs50,000 worth of investments,” said Yogesh Kulkarni, proprietor, Royal Investments.
Sources also indicate that some mutual fund distributors have completely stopped sending self-declaration forms to AMCs due to the paltry commissions involved. SEBI rules mandate that all intermediaries send a self-declaration form to fund houses annually, failing which the fund house can stop the commission paid to distributors. The self-declaration form contains an acknowledgement that a distributor has disclosed the commission received by him to the investor.