MONEY MATTERS

Mumbai, Dec. 30: Public sector banks are warming up to mutual funds with renewed vigour.

Some of them such as the Bank of India had exited the business earlier.

They are now either tying up with overseas players or entering into distribution arrangements with fund houses.

This is because mutual funds not only make good business but also widen the product portfolio of banks, enabling them to offer other services such as wealth management that yield higher returns.

Income generated from the distribution of mutual funds and insurance products has reported strong growth in the last couple of years, offsetting the pressure on margins.

The Reserve Bank of India’s report on Trend and Progress of Banking in India, 2006-07, revealed that the other income of banks rose 10 per cent to Rs 38,929.46 crore in 2006-07 from Rs 35, 367.80 crore in 2005-06.

Of this, the income from the selling of mutual funds and insurance products accounted for Rs 24, 207.50 crore, a rise of around 30 per cent from Rs 18,640.91 crore.

The growth rate is higher than the interest income from loans earned by banks, which rose around 28 per cent during the same period.

After a steady decline through 2002, 2003 and 2004, the banks’ fee income has risen since 2005. This explains why the Bank of India is planning a re-entry.

After shortlisting two entities, BBVA of Spain and Belgium-based KBC, the Union Bank of India opted for the latter.

Earlier, the Bank of Baroda had joined hands with Pioneer Investments and Robeco Groep NV to pick up a 49 per cent stake in Canbank Investment Management Services Ltd, the asset management arm of Canara Bank.

Uco Bank insurance entry

Public sector Uco Bank is in talks with with a few foreign companies to foray into the non-life insurance business, chairman and managing director S.K Goel said today.

Liberty of the US, Italy’s Engine and a few Japanese players had shown interest in the non-life venture with Uco, Goel added. Uco would also like to have another public sector bank as a partner for the venture.

Besides, the bank would start a stock market derivative unit within its treasury wing during the next financial year.