Third Party Products

R.Handa
Rajiv Handa & Associates
Rajiv.handa.bankedu@gmail.com

Introduction

Banks work as Intermediaries

Collect Deposits & Lend to Borrowers Earn interest to be able to pay interest Difference in called Net Interest Margin Enables them to access large number of customers Large pool of customers with variety of banking needs Branches & Alternate channels already selling Banks own products Changes in regulation and business environment Moving to sell financial & ancillary products through tie ups Enables Banks to add an additional revenue stream for Fee income

Possess a large branch network

Expanding from Intermediation to Distribution

Third Party Products

Rationale

Using the large distribution network Leveraging the large customer base Multiple sources of earning risk free fee income

Cross sell opportunity

High revenue potential Customers value Bankers advice Supporting customers efforts at Financial Planning

Offering a bouquet of investment products

Improves value of relationship

Third party Products

Insurance

Life

General

Mutual Funds

Equity

Debt

Gold

Gold -ETFs

Insurance - Bancassurance

Bancassurance - Scope

Individual customers

Life & General ( Mediclaim ) General

Corporate Customers

Stocks

Land & Building

Plant & machinery Other risks Mediclaim for employees For employees

Life

Bancassurance
o o

Banks act as agents of insurance companies Get good commissions on each sale
o

Banks are leveraging this well in Retail Banking

Role limited to selling the insurance policy Servicing of policy is directly handled by the insurance company

Can tie-up with only one insurance company

No linkage between customers bank account and the insurance policy sold by the bank Policies can be sold to anyone - a bank customer or not

o o

Banks may also consider giving loan against life insurance policies
o
o

based on policys surrender value; Not a mandatory condition

Mutual Funds

Banks sell mutual funds as Selling Agents through tie ups

Enable customers to diversify their savings

Investment advisory enables sale Equity : debt: Hybrid : ETFs

No restriction to sales of only one mutual fund

Fee from Mutual Funds

Can levy service charge to the customers

Freedom to Customer to buy MF units from any bank , not necessarily from where he has his account The dividend /repayment is credited by the MF in designated account

Gold
o

Gold is sold as an investment option

o o o

Balancing of customer portfolio

Long term security Indians penchant for gold

o o o

Banks are trusted by customers for quality of Gold Gold is imported on consignment basis Sell gold to retail customers

in the form of coins / bars and not jewellery Cant offer two-way quotes
Keeping in view the price of gold, Fee income is hefty

Not allowed to re-purchase the gold

Paid commission on the sale

o

Of late some banks are going slow

Government Business

Can be treated as Third Party

Banks act as agents for collection & management Services offered on behalf of Government

Receive fee on transaction or ad valorem basis Float available which support in improving cost of funds Tax Collection Sale and Servicing of RBI Bonds Public Provident Fund Account Pension Payments

Following products / services offered

De-mat Account

NSDL and CDSL are depositories

offer De-mat accounts for Financial Products

NCDEX and MCX offer De-mat Services for Commodities Banks act as Depository Participants (DPs) for NSDL /CDSL DPs open and operate de-mat accounts of investors

DPs also maintain Clearing Accounts of Brokers i.e. Clearing Members (CMs)

or carrying out clearing and settlement functions in respect of electronic trades Obtaining / collecting forms, documents, acknowledgements, statements / reports and bills etc.

Responsible for necessary operational formalities

Paid fees on ad valorem basis / service basis

De-mat Services

Dematerialisation Converting physical share certificates into electronic ledger account Asset Holding Maintaining balance in the electronic form

Delivery / Receipt in market /off-market trades Account Freezing / De-freezing and Pledging Receiving Bonus / Rights and Conversions effected by companies Receiving Securities allotted in Public Issue Re-materialisation Converting back to the physical form Lending and Borrowing of Securities Providing MIS/Account Statement

Clearing Member Account Opening (Pool Account)