Provide portfolio mgmt details, RBI to banks

The Reserve Bank of India has asked banks to furnish details of the portfolio management services offered by them.

The Financial Stability and Development Council had earlier mandated RBI and the Securities and Exchange Board of India to undertake a review of the existing practices followed by banks and brokerage houses in offering wealth management services.

The regulators were also asked to to come up with fresh guidelines for wealth management services.

RBI had, earlier this week, sent mails to various chief executive officers of banks, asking for the details of their operations.

It sought to know under what name various products were sold -- whether they came under portfolio management, wealth management, private banking or investment advisory.

WHAT RBI WANTS TO KNOW # Nomenclature of the scheme # Details of products offered — whether they are bonds, FDs or debentures # If there is any actual, perceived or potential conflict of interest in offering such products # Disclosures to clients about risks and returns # Obligation of the bank towards clients regarding products advised on # Organisational structure for providing WMS # Professional qualification and a proper criteria for officials handling WMS # Code of conduct, if any, for officials handling WMS # Number of branches where such schemes are operated # Whether or not the services are free # Amount of funds managed under each scheme # Number of frauds, complaints and grievances addressed

RBI guidelines pertain to portfolio management services.

"RBI has asked us to furnish details of the various parameters of portfolio

management services like nomenclature, the products offered and the disclosures we make to clients about risks and returns" said a senior official of a public sector bank.

Most foreign and private banks, along with a few public sector banks, offer portfolio management services.

RBI also wanted to know if there was any actual, perceived or potential conflict of interest in offering such products and a bank's responsibility or obligation towards its clients.

It also asked whether the people selling these products were qualified and whether there was a proper criterion for employees offering such services.

Banks would also have to provide information on the number of complaints and the performance of their grievance-redressal mechanism.

Portfolio management services offered by banks are classified into four categories -- referral services, investment advisory, non-discretionary and discretionary. Sources said the current norms do not clearly distinguish between investment advisory and non-discretionary portfolio management services.

Currently, to offer portfolio management services, banks need RBI's approval. They also have to be registered with Sebi. Registration with Sebi is also required to offer investment advisory services, which are non-discretionary in nature (the client's approval is required for investment).

The RBI communique follows a fraud in Citibank's branch in Gurgaon in December 2010.

The fraud was allegedly committed by its employee, Shivraj Puri, who had siphoned off Rs 400 crore (Rs 4 billion) by selling financial products not authorised by the bank.

The investment products were allegedly sold to high net-worth individuals, with a claim that these would generate very high returns.