Can Yes Bank emulate its peers' success in the mutual fund business?

In early July, Yes Bank announced that it had received the go-ahead from Securities and Exchange Board of India (Sebi) to start its mutual fund operations. Yes AMC will become the 43rd fund house to join the MF industry.

While there are several AMCs currently operating in India, the top 5 AMCs account for 57 per cent of the industry’s AUM. Despite the huge growth potential, there are only a few AMCs that have managed to gain a respectable market share. However, Yes AMC may have a slight edge thanks to the bank-backing. Among the top 5 AMCs in the industry, three happen to be bank-backed AMCs which together account for 36 per cent of industry assets.

Also, when it comes to the distribution of mutual fund products, eight of the top 10 distributors by way of commissions earned, happen to be banks and their subsidiaries. Barring SBI, all the banks among the top 10 distributors, are private banks. A good part of these banks’ distribution commissions come from selling schemes where they are sponsorers themselves.

For instance, 60 per cent of commissions earned by SBI in FY18 came from selling SBI MF schemes. For Axis Bank, the share was as high as 69 per cent. In the case of ICICI Bank and HDFC Bank, the contribution was around one-fourth.

However, having a good distribution platform is no guarantee for success. Several AMCs, especially those backed by PSU banks, have struggled to scale up their business.

Getting the right set of people is crucial for success, especially in the AMC business. According to sources, the AMC will soon rope in a new CEO to drive its MF operations. Sources suggest that Yes Bank is in talks with ex-CEO of DHFL Pramerica MF Suresh Soni to head its MF operations.  

While Soni didn’t deny the development over the phone, he refrained from making any comment. Yes Bank in an e-mailed response said that as a policy, it doesn’t comment on market speculation and would only be able to share details as and when there is an official update.

Some former employees at DHFL Pramerica MF have already joined Yes Bank’s mutual fund arm. For instance, Vasudha Shah, who was heading investor services at DHFL Pramerica MF for over eight years, moved to Yes AMC in October 2017.  

Besides its 1,100-branch presence across India, Yes AMC could initially focus on debt schemes given its expertise in managing its treasury.

Over the last two years, Yes Bank’s treasury profits have compounded at 10 per cent annually. This is at a time when even large banks are facing erosion in their treasury profits due to hardening bond yields.

Initially, Yes Bank will be able to draw upon some of its strengths, but it has its task cut out if it wants to hobnob with the big boys of the MF industry.

Bank for the buck:

Bank-backed AMCs account for over one-third of industry assets

AMC QAAUM in June (Rs trn)
HDFC MF 3.06
Birla Sun Life MF 2.5
Reliance MF 2.35
SBI MF 2.33

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