Public sector banks make beeline to offer equity broking services

Mumbai: Public sector banks are gearing up to introduce equity broking services. Bank of Baroda, Allahabad Bank and Corporation Bank are among those looking to offer retail broking services to their customers through their respective capital market subsidiaries, said two people familiar with the matter.

Bank of Baroda will throw open its online retail trading platform to customers in about two months, said a senior official from the bank. The bank had set up its institutional broking business in 2009. Allahabad Bank executive director D Sarkar confirmed the bank was looking at offering retail broking services but declined to give a launch date. “We have thought about foraying into broking services in the past. We will discuss about it again once our board meets and the annual financial results are announced. Whenever it happens, it will happen through a subsidiary route,” he said.

Offering broking services can help banks to expand their range of services. It also makes it easier for them to distribute financial products such as mutual funds and insurance. “The main purpose is to attract existing CASA clients and offer them universal banking services under one roof,” said the official from BoB.

Under existing rules, banks cannot get into broking directly but have to offer these services under a separate subsidiary. In January, private sector bank Axis Bank forayed into retail broking through AxisDirect, its online trading platform. AxisDirect is a product of Axis Securities and Sales, a 100% subsidiary of Axis Bank. Last year, Standard Chartered Bank bought the remaining 25.1% stake in broking firm Standard Chartered-STCI Capital Markets (formerly UTI Securities), upping its holding to 100%.

“Earlier, public sector banks didn’t have the inclination to offer broking services. But with many clients asking for these services and investment becoming a key area of focus for most banks, this offering has become a necessity now,” said the retail head of a leading brokerage, who didn’t want to be named.

He added that the main objective of offering these services may not be to generate broking revenues but to ensure clients have a platform to trade and the trading income comes back to the bank. “The broking division will not become a profit centre from day one and may take about a year or two to break even,” admitted the official from BoB.

What’s more, it won’t be easy to match the services offered by regular brokerages. For instance, since banks cannot set up an NBFC, they will be hard- pressed to offer margin funding to their clients.

Manasije Mishra, CEO of HSBC InvestDirect pointed out that the mindset of a banker is different from that of a broker: “Running a brokerage requires flexibility to offer leverage, give tips and provide additional advisory services that banks will have to get used to.”

Also, robust technology will become a necessity and the banking staff will have to be trained to cross-sell products.

Source: Financial Express