Mutual fund houses tie with co-operative banks

After a slew of tie-ups with commercial banks, domestic mutual fund houses are increasingly looking at joining hands with co-operative banks as part of their attempts to push the product sales in smaller towns and rural areas.

Industry officials attribute this trend to fierce competition in the Tier-I and urban areas, where mutual funds (MF) are fighting for the same pie. India’s rapidly growing MF industry now manages a little over Rs 3,00,000 crore between 30-odd asset management companies.

With equity markets doing well, an increasing number of retail investors are looking to tap the equity market through the MF route. “Revenues from main cities are showing signs of saturation and the industry is sensing the need to tap new areas. Co-operative banks seem to be next best option because of their large and loyal customer base,” said Jimmy Patel, CEO and COO of JM Financial Asset Management, which recently tied up with Saraswat Cooperative Bank for distribution of MF products.

While Franklin Templeton is believed to have tied up with Saraswat Bank for such an arrangement, Prudential ICICI Asset Management is also scouting for a partner for this purpose. Saraswat, which is Asia’s largest urban co-operative bank, has tie-ups with seven MFs including Kotak Mutual Fund, Reliance Mutual Fund, Franklin Templeton Mutual Fund, and ING Mutual Fund, UTI Mutual Fund.

Some argue that penetration through co-operative banks, barring the top few, could be difficult. “Most of the tie-ups that have happened are through a few top ones (co-operative banks), rather than a wide base. This is because most of the co-operative banks still need to grow in terms of technology and expertise,” said an official with a foreign mutual fund.

While industry officials feel opportunities with private sector and foreign banks for MF distribution are relatively saturating because of their pre-dominant presence in larger cities, they believe public sector banks have still a lot to offer.

“Though reach is extremely important for the industry, however, distribution has always been a major concern for this industry. New set of distributors will help to get new customers, which in turn will help the industry grow. PSU banks have advantage of reach and customer base.” said Bharat Ghia, vice-president & head — alternate banking channel, Prudential ICICI.

In recent months, domestic mutual funds have entered into partnerships with a number of public sector and old private sector banks to leverage products. Banks, especially with retail focus, also gain from such tie-ups, as fee-based income via selling of MF and other products boosts their bottomlines.

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