After getting the go-ahead from the Reserve Bank of India (RBI), IDBI Bank is all set to apply to the Securities and Exchange Board of India (Sebi) for a mutual fund licence.
According to sources, IDBI Bank is currently going solo, but it may rope in a joint venture partner later. The board of directors of IDBI Bank has already approved the proposal at its meeting held on April 24.
IDBI Bank will have to set aside Rs 10 crore (Rs 100 million) as minimum paid-up capital to set up the asset management company (AMC). We have recently got an approval from RBI to set up an AMC. We will soon be approaching the market regulator for clearance, said IDBI chief financial officer (CFO) R K Bansal.
It is interesting to note that IDBI Bank had an AMC in joint venture with the Principal Financial group of the US way back in 2000. However, it exited the JV in 2003 by divesting its 50 per cent stake in IDBI-Principal AMC to the joint venture partner for Rs 94 crore (Rs 940 million).
The mutual fund industry, which has an average assets under management of Rs 4,93,286.56 crore, currently has 36 players with Shinsei being the latest entrant. The penetration of mutual funds in India is only 4 per cent of the GDP, a reason why global and domestic players have been
making a beeline for setting up shop in the country.
However, 2008 was one of the worst years for the mutual fund industry as AMCs were caught in a liquidity trap in October with banks unwilling to lend. Investments in real estate and non-banking finance company (NBFC)
papers added to the trouble as there were hardly any takers. Redemption pressures kicked in and mutual funds had to be rescued by RBI and Sebi collectively.
Currently, there are 20 players lined up with Sebi for mutual fund licences. These include Axis Bank, Indiabulls, Future Finance, Peerless, Schroders and Sanlam Investment Management among others.
IDBI Bank recently entered the insurance business with Federal Bank and Fortis. IDBI Bank holds 48 per cent, while Federal Bank and Fortis have 26 per cent each in the tripartite venture.
The asset management industry has become highly concentrated with top five AMCs accounting for more than 50 per cent of the total assets of the industry.
According to figures (as on March-end) provided by the Association of Mutual Funds in India, fixed income constitutes 47 per cent of the total assets under management for mutual funds, while equity accounts for only 23 per cent, followed by liquid and money market at 22 per cent.