The Hindu Business Line : Third-party vending biz is new revenue source

Extra money
Fee amounts help diversify revenue streams
Banks redeploy part of workforce to other areas
Compensates for loss of other fee income

Chennai/Thiruvananthapuram , Oct. 27

Commission earned on selling other companies' products (or third-party distribution business) is emerging as a new revenue source for many banks.

The commission or fee is earned mainly through selling insurance products (both life and general) and mutual funds.

HDFC Bank, for instance, earned about Rs 200 crore through sale of insurance products and mutual funds. Of course, it helped that the bank's parent, HDFC, had started ventures in these fields.

Public sector banks too have entered into a number of tie-ups with other insurance companies and mutual funds and are mopping up funds for them.

Although the fee amounts are still small, they are a valuable contribution to diversifying revenue streams, increasing the mix of non-interest income and also improve profits.

Syndicate Bank, for instance, earned a commission of Rs 12 crore in 2006. Similarly, Andhra Bank earned Rs 24 crore through such sales while Allahabad Bank earned Rs 18 crore in 2005-06.

Mr Anil Khandelwal, Chairman and Managing Director of Bank of Baroda, said: "Anybody who sells insurance and mutual funds needs customers and a platform. I have both. Anybody who has customers can get into the financial services sector today - even someone who has a petrol pump. We make ideal partners for mutual funds and insurance companies. Most importantly, our surplus workforce can be utilised for this." He added that with implementation of full computerisation and networking of most branches (core banking solutions), banks have redeployed a part of their workforce to other areas.

For some others, it is also to compensate for the loss of other types of fee income.

Mr Ananthakrishna, Chairman of Karnataka Bank, said: "We sell life insurance for MetLife, general insurance for Bajaj Allianz, besides mutual fund and remittance products such as Western Union's services. At the time of the introduction of core banking solutions, we saw that fee-based income on demand drafts, money transfers and collection of bills and cheques fell. We wanted to supplement these with some other income. You'll find that the fee-based income during the last three years has been more or less static. Now we will look at a growth of 10-12 per cent in fee income every year. We are getting about Rs 10 crore through sale of insurance products and about Rs 1 crore through Western Union. Our aim is to earn Rs 15 crore through these third party products this year."

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