Mutual Fund Commissions: Foreign banks lead once again, other top distributors lag behind

Seven banks were among the top 10 list of highest mutual fund commissions earned with HongKong Bank, HDFC Bank, Citibank and Standard Chartered leading the pack

Banks lead the list in terms of highest commissions earned. The top five banks with the highest commission earned were Hongkong & Shanghai Banking Corporation (HSBC) with Rs153.98 crore, HDFC Bank and Citibank earned a commission of Rs130 crore each, Standard Chartered Bank and Axis Bank followed with commissions of Rs84.53 crore and Rs59.25 crore respectively, according to data released by Association of Mutual Funds in India (AMFI). Few banks have earned a significant part of their commission from the fund companies of the same group. The commissions earned by the banks compared to the previous year have gone up significantly. However, for top non-bank distributors the numbers are not too encouraging.

The commissions paid out to 403 distributors in FY10-11 amounted to Rs1,770 crore, however, the commission paid out to just 269 distributors (that operated from more than 20 locations) in FY11-12 was as much as Rs1,859 crore. The total commissions earned by the top 10 banks increased by around 20%, whereas that of top 10 non-bank distributors increased by just 2% compared to the previous financial year. The commissions of HSBC grew by nearly 30%, whereas NJ India Invest, which is one of the top non-bank distributors, the commissions grew by a paltry 3.85%. Other top distributors, in terms of commission earned like JM Financial Services, Bajaj Capital, Aditya Birla Money Mart and Karvy Stock Broking earned lower commissions compared to what they earned in the pervious year.

In the list of 269 distributors, the top 25 distributors take around 70% of the total commissions earned. Out of these 25 distributors, 12 are banks which take a share of more than 60% of the commissions.

Most of the commissions earned by the banks are from the fund house of the same group. State Bank of India earned a commission of Rs30.76 crore, of which 91% or Rs28.06 crore came from SBI Mutual Fund. In the same way, Axis Bank earned 59% of its Rs59.24 crore commissions from Axis Mutual Fund and 36% of the commissions earned by HDFC Bank came from HDFC Mutual Fund.

This is something Moneylife had pointed out last year too when the commissions earned were disclosed. Bankers command enormous reach and trust among their customers compared to distributors. All banking processes are geared to maximise sales and profits and this leads to hard selling of products by the so-called “relationship managers (RMs)”.

Not only this, banks have a readymade database of their clients’ personal details and their financial situation, unlike other distributors. Armed with such information it is easy for them to cross-sell financial products such as mutual funds and insurance. This is a means for them to push sales and earn higher commissions. But this selling usually does not take the customer’s interest into account. It is purely driven by commission. Moneylife has covered many such cases in the past.




TCS posts 35.65% increase in net profit; but margins remain steady

Tata Consultancy Services has reported its Q1 results for the fiscal 2012-13. Its margins were impacted by increases in wage bill, on-boarding costs and visa bill despite a fall in rupee

Tata Consultancy Services (TCS), a behemoth IT Indian company, has posted a 35.65% year-on-year (y-o-y) increase in net profit to Rs2797.59 crore for the quarter ended 30 June 2012 compared to Rs2062.43 crore for the corresponding period last year. However, its net profit margin was 24.52%, which remained more or less the same from the corresponding period last year, despite the fall in the rupee. For the same time period, its total revenue increased 33.15% y-o-y, from Rs8,696.81 crore to Rs11,579.91 crore.

If one looks at the numbers, it revenue growth is largely in line with its historic patterns. Its current quarter revenue growth rate is in line with its three-quarter y-o-y growth rate of 35%. However, the decline in the rupee would have ideally boosted its revenue, but it hasn’t. This could be a concern as underlying business could be under pressure or the company is not increasing its billing rates in order to retain customers. Its operating profit showed some positive signs, growing at an impressive 42% when compared to three-quarter y-o-y growth of 34%. Its operating profit margin (OPM) grew by 140 basis percentage points to 30.24%. This was due to prudent cost management. Given its return of networth (47%, based on the preceding four quarters), as well as its reputation, its valuation is slightly on the higher end, with market-capitalisation quoting 17 times its operating profit.

N Chandrasekaran, TCS CEO and managing director, said, “We’ve seen strong, secular growth across all our service lines and industry segments driven by robust volumes from key markets like North America, Europe and UK”. He further added, “We continue to see good demand from global corporations as they successfully navigate an increasingly complex business environment. Our investments in new technologies and platforms are bearing fruit with increasing market traction and we are confident of playing a pivotal role in our customers’ future business evolution.” When asked about the impact of pricing, he said that he doesn’t see any erosion in pricing.

In a deteriorating rupee regime, one would have expected the company to post stellar figures. However, the exchange rate impact was only 2.76% increase while this was countered with a 2% increase in its wage bill. Mr Chandrasekeran said that there were three headwinds namely wage bill, on-boarding costs and visa costs, and all three has impacted margins.

Geographically, all businesses grew, except India. North America grew 3% on constant currency basis while India showed a decline of 7% on constant currency basis, thus underscoring a challenging domestic economic climate. Its telecom vertical, which was laggard for a long time, grew 7% on a constant currency basis, whereas banking financial services & insurance (BFSI), its biggest vertical, grew at 5.73%. It gets 42% of revenues from BFSI, 7.9% from manufacturing, 13% from retail & packaged goods, 12% from telecom, media & entertainment, while the remainder is derived from various other industries.

The company has added 29 new clients in the latest quarter while attrition was recorded at 12%. It added 13,831 employees while utilisation rates were at 72.3%, which is fair though not impressive. The total employee strength of the company in the quarter ended June stood at 2,43,545.

The highlight was signing a $100+ contract with a leading North American retailer as its transformation partner.


RBI panel looking into alternative to gold imports

The central bank, worried over the substantial contribution by gold into country's current account deficit, is looking into the aspects of devising some alternative routes

Kolkata: With gold imports contributing substantially to India's current account deficit (CAD), a panel set up by the Reserve Bank of India (RBI) is looking into the aspects of devising some alternative routes, a top official of the central bank said on Thursday.


According to a PTI report, RBI Deputy Governor Anand Sinha, has said, "Gold imports are contributing substantially to India's current account deficit".


He said, "Import is one aspect and the other is bringing out the gold which is already existing in the country."


"Whether it can be brought out to satisfy the demand by devising appropriate financial instruments has to be seen. Several proposals are there. There is a committee looking into these aspects," Sinha told reporters.


The country's CAD, which is the difference between total imports and transfers and total exports, widened to the highest ever level to 4.5% of GDP at $21.7 billion in January-March period of 2011-12.


To a query, he said that the draft guidelines on new banking licences have been circulated.


Sinha said that RBI would proceed further once the Banking Regulation (Amendment) Bill was through. After that, RBI would finalise the guidelines.


Regarding shareholding by foreign banks, he said that it has been already mentioned in the draft guidelines that it would be 49% in the initial years. After that, it would be usual as per normal FDI rules, Sinha added.


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