Third Party ProductsR.Handa Rajiv Handa & AssociatesRajiv.handa.bankedu@gmail.com

IntroductionBanks work as IntermediariesCollect Deposits & Lend to BorrowersEarn interest to be able to pay interestDifference in called Net Interest Margin Possess a large branch networkEnables them to access large number of customersLarge pool of customers with variety of banking needsExpanding from Intermediation to DistributionBranches & Alternate channels already selling Banks own productsChanges in regulation and business environmentMoving to sell financial & ancillary products through tie upsEnables Banks to add an additional revenue stream for Fee income

Third Party ProductsRationale :Using the large distribution networkLeveraging the large customer baseMultiple sources of earning risk free fee incomeCross sell opportunityHigh revenue potentialCustomers value Bankers adviceSupporting customers efforts at Financial PlanningOffering a bouquet of investment products Improves value of relationship

Third party ProductsMutual Funds

Insurance - BancassuranceThird party distribution of financial products is turning into big business opportunity for banks. Bancassurance began as a trickle, but is gradually beginning to make an impact.Bancassurance is building synergies between the insurance and bank network to market insurance products through the banking channels.According to insurance industry sources, around 15-20% of fresh life insurance business (in terms of premium income) is getting generated through banking channels. This is still way behind European countries such as Spain (77%), Portugal (75%) and Italy (67%).

Bancassurance - ScopeIndividual customers Life & General ( Mediclaim )Corporate Customers General StocksLand & BuildingPlant & machineryOther risksMediclaim for employeesLifeFor employees

BancassuranceBanks act as agents of insurance companies Get good commissions on each sale Banks are leveraging this well in Retail BankingCan tie-up with only one insurance company Role limited to selling the insurance policy Servicing of policy is directly handled by the 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 Banks may also consider giving loan against life insurance policies based on policys surrender value; Not a mandatory condition

Mutual FundsBanks sell mutual funds as Selling Agents through tie upsEnable customers to diversify their savingsInvestment advisory enables saleEquity : 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 Gold is sold as an investment optionBalancing of customer portfolioLong term securityIndians penchant for goldBanks are trusted by customers for quality of GoldGold is imported on consignment basisSell gold to retail customers in the form of coins / bars and not jewellery Not allowed to re-purchase the goldCant offer two-way quotes Paid commission on the saleKeeping in view the price of gold, Fee income is heftyOf late some banks are going slow

Government BusinessCan be treated as Third PartyBanks act as agents for collection & managementServices offered on behalf of GovernmentReceive fee on transaction or ad valorem basisFloat available which support in improving cost of funds Following products / services offeredTax Collection Sale and Servicing of RBI BondsPublic Provident Fund Account Pension Payments -

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 Responsible for necessary operational formalities Obtaining / collecting forms, documents, acknowledgements, statements / reports and bills etc. Paid fees on ad valorem basis / service basis

De-mat ServicesDematerialisation 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)

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