The Reserve Bank of India’s move to relax norms for Non-Banking Financial Corporations (NBFCs) to sell mutual funds is expected to help the industry expand its footprint in B-15 cities.
With the relaxed norms, other NBFCs who stayed away from MF distribution business due to stringent RBI norms may become mutual fund distributors which would mutually benefit both NBFCs and the MF industry, said the sales head of a domestic fund house.
Some NBFCs like India Infoline and L&T Finance are already into mutual fund distribution. IIFL is one the largest mutual fund distributors which manages assets under advisory of Rs.12,711 crore as on March 2014.
D P Singh, Executive Director and Chief Marketing Officer, Domestic Business, SBI Mutual Fund said that the move will help small NBFCs to distribute mutual funds. “A few large NBFCs like IIFL, L&T Finance and LIC Housing Finance are already selling mutual funds. I believe the new norms will help emerging NBFCs increase their business through mutual fund distribution. Also, this can increase penetration of mutual fund in B-15 cities. However, it will take time to become reality.”
Last week, RBI has come out with a circular in which it has done away with norms like maintaining net owned fund of Rs.100 crore and two years of profitability for distributing MF schemes. The RBI circular said “On a review, since the distribution of mutual fund products by the NBFCs is on non-risk sharing basis and purely as a customer service, it has now been decided to dispense with the requirement of prior approval from the Reserve Bank for NBFCs to distribute mutual fund products. It has also been decided to dispense with the minimum eligibility criteria. Accordingly, the guidelines on distribution of mutual fund products by NBFCs have been suitably modified.”
It remains to be seen if NBFCs account for a larger share of MF distribution pie in the days to come.
