Banks may have to change their incentive structure for RMs

Selling mutual funds and insurance schemes may not be so attractive for relationship managers of banks as RBI plans to tighten the norms on incentives they get for selling these products.

The recent draft guidelines of RBI states that banks cannot incentivize their salespersonsfrom the commission earned by selling mutual funds. “No incentive (cash or non-cash) linked directly or indirectly to the income received from marketing and distribution function should be paid to the staff engaged in marketing/distribution services of third party products. The staff of the bank is also not permitted to receive any incentive (cash or non-cash) directly from the third party issuer. Banks must ensure that there is no violation of the above in the incentive structure to staff” stated the RBI draft guidelines release on June 28, 2013.

“Banks will have to restructure their incentive model as they can’t circumvent RBI norms,” said Nilesh Sathe CEO, LIC Nomura Mutual Fund.

While the proposed guidelines may not deeply impact AMCs, some industry experts feel that it could cause short term disruption. “The entire set up works on incentives. Banks have to figure out a way now. It will have a short term impact but an alternate way will be worked out over a period of time,” feels a sales head of a bank sponsored AMC.

Apart from the upfront and trail commission, AMCs have paid incentive schemes for meeting targets. In the past, relationship managers of banks were also taken to junkets on meeting their targets. All this may change if the draft guidelines are implemented by RBI, feel experts.

Banks have been an important channel in the distribution of mutual funds. Out of the total commission of Rs 1860 crore in FY 11-12 paid to 373 large distributors, 41% or Rs 760 crore was paid to bank distributors.

The RBI has also proposed that transactions above Rs 50000 should only be accepted through debit to customers account with the bank and not in cash/cheque of other banks. Fund officials say that this rule is meant to curb money laundering due to the recent allegations made by Cobrapost against banks and it won’t affect AMCs so much. “This may not affect us as banks usually tap their own customers for selling mutual funds,” added Nilesh Sathe. 

The central bank has also said that banks will have to disclose the commission received by them to their customers.

Commissions earned by top banks for selling mutual funds