In a recent letter to all public sector banks (PSBs), the Department of Financial Services, Ministry of Finance has asked these banks not to incentivise their employees with commission for cross selling of financial products such as insurance and mutual fund products. In fact, the ministry said that there is no need to incentivize the employees as they work for a fixed salary. Any income accrued of third party product sales is the income of banks, said the ministry.
A few years back, Central Vigilance Commission (CVC) had recommended the finance ministry that PSBs should stop the practice of incentivizing their employees with cash benefits.
Since a few PSU banks are the largest distributors of their subsidiary fund houses such as SBI, Canara Robeco, Bank of Baroda and Union, we spoke to a few experts to understand the impact of this move on the industry.
Dinesh Kumar Khara, Managing Director, SBI Bank believes that the move will have no major impact on business. “The commission for the cross selling is received by the bank and booked as an Income. The bank in turn runs reward and recognition programme for its employees. The parameters for such schemes involve performance in bank’s core business and cross sell. As such this circular will not have a material impact on cross selling through the bank,” he added.
Currently, SBI is the third largest distributors of mutual funds in India. SBI has witnessed 19x growth in its gross commission i.e. from Rs.29 crore in FY 2013-14 to Rs.552 crore in FY 2017-18.
Talking about these reward programs, a relationship manager of a large PSU bank requesting anonymity told Cafemutual that they get benefits in the form of reward card if they attain a certain sales target. “Though there is no cash benefit currently, we get reward card from our bank, which can be redeemed against shopping. We get 80 to 100 reward points (equivalent to Rs.80-100), if we activate an SIP.”Another relationship manager (RM) pointed out that most PSU banks have their own wealth management arm. “Soon after RBI asked banks to segregate their distribution and banking business, many PSU banks have started their own wealth management business,” said this RM.
G. Pradeepkumar, CEO, Union Mutual Fund believes that PSU bank backed AMCs will not be affected by this move. “We do not give any direct cash commissions to the bank employees. Thus, we do not see this regulation affecting us in any way,” he added.
Seconding Pradeepkumar’s view, DP Singh, ED & CMO (Domestic) SBI MF too clarified that the AMC gives commissions directly to the bank based on total sales and it is on their discretion if they want to retain the commission or pass on it to their employees.
