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May, 13 2010

BROKERAGE BESIDES BANKING

With brokerage becoming all the more attractive, banks are either venturing into the brokerage sector directly or through a strategic tie-up. In order to check out why banks are turning into brokers, TFW delves into detail to find out reasons behind the s

With brokerage becoming all the more attractive, banks are either venturing into the brokerage sector directly or through a strategic tie-up. In order to check out why banks are turning into brokers, TFW delves into detail to find out reasons behind the same.

TO provide a complete bouquet of financial solutions, banks and brokerage firms are collaborating to offer better services to their consumers across the country.

Although this on going trend is not new, various factors are responsible for increasing general awareness among the retail investors. The use of hybrid model, including online and offline presence and existence of many branded and non-branded brokers across the country has led to the growth of the brokerage industry.

Witnessing growth in this sector, banks have either started venturing into the brokerage area directly or through a strategic tie-up with established brokers in the country to tap the untapped market.  In order to add value to their services, such as trading and investment products, banks are now providing to its customers a one-stop solution for investing in the stock market. To enhance their distribution network, many banks such as HDFC, ICICI, Kotak Mahindra, Bank of Baroda, Punjab National Bank, Yes Bank, Axis Bank and Centurion Bank of Punjab have entered into the brokerage services through online and offline trading either by starting their own subsidiary or associating with the established brokers such as India Infoline, IL&FS Investsmart Limited (IIL) and India Bulls.

State Bank of India through SBI Capital Markets has just began its retail brokerage services. India's second largest public sector bank has also entered into an alliance with four brokerage firms, including Networth Stock Broking and SMC Global Securities, to strengthen its online securities trading services. Currently, PNB, in association with IDBI Capital Market Services offers online securities trading services to its clients through its branches spread across the country.  To test the market, several banks are having a tie-up with brokerage firms to meet the objective of offering various value-added services to its clients in its move to help the customers of banking firms to make informed investment decisions. With this, brokers and banks are exploring opportunities to create synergies among different lines of businesses. For instance, Kotak Securities Ltd, a part of Kotak Mahindra Group, through their sub-brokers, offers its investors various products and services like equities, derivatives, portfolio management services, mutual funds, structured products, IPOs and third party products.

Banks turn brokers

With a wider geographical reach, the banks tend to tap the market with their seamless offerings to the consumers. Few banks give convenience of trading on the Internet or on phone. Investors also have the flexibility to deliver/receive payments and/or demat shares in the conventional offline mode. Few banks which are not directly involved in brokerage business have signed a Memorandum of Understanding (MoU) with brokerage firms. For example, Centurion Bank of Punjab's demat and banking customers can now avail equity broking services with the launch of its Online E-Broking through IL&FS Investsmart Limited (IIL) delivery platform.

According to the latest Central Statistical Organisation data, financial services and real estate sector rose by 9.5 per cent in the first quarter of 2009-10. In the arena of online share trading, there are mainly two types of companies that include banks such as ICICI, HDFC, Kotak Mahindra, which turned into brokers while the rest are companies that are solely into brokerage such as Sharekhan, Karvy.com, ICICI Securities, HDFC Securities, India Infoline, Motilal Oswal, IL&FS Investsmart, Angel Broking and Geojit offering online brokerage services for traders.

Commenting on the key reasons behind the growth of banks into brokerage service, Dharmesh Dixit, Head, Sub-Broker Channel, ICICI Securities Ltd, says, “The low penetration of equity products among Indian investors and success of technology in banking and financial services led us to launch state-of-the-art web-base trading platform through ICICIdirect.com. Equity is an important product to be offered to customers esp in country like India where customer knowledge and investment in equity is low.” ICICI is present both in direct (ICICI Securities) as well as indirect (ICICI Prudential AMC and ICICI Prudential Life Insurance) equity investment so as to give wide variety of products to the customers.”

Vijay Chopra, National Head, Business Alliance, Unicon Financial Intermediaries, believes, “Banks have diversified into selling of insurance products due to enhanced product basket/diversified product portfolio, capitalising on existing client base, potential of increasing their reach, advantage of selling different products to different customers, attracting non-banking customers and the commissions earned directly benefit the bottom-line of the banks.”

While brokerage firms tie-up with banks to reach out to the customer base of banks, banks tie-up with brokers to provide an entire gamut of financial products and services under one roof that will enable them to expand their suite of capital market-related facilities to the customers in terms of banking, depository and brokerage services. One of the basic principles of any intermediary is to make sure that the customers are offered products/investments which are as per their needs/risk profile. “In India, due to the increasing middle class population with higher incomes and low penetration of equity products (directly or indirectly through ULIP/MF), retail broking has become an attractive proposition. We offer a range of financial products to the customers considering their risk profile and financial needs. Equity being highest performing asset over long period of time is too good an opportunity to be missed,” adds Dixit.

Rather than venturing into offline service, SBI Cap Securities has ventured into e-broking service, which is chiefly targeted at Internet-savvy clients, especially the younger generation, who prefers to operate through net banking in the stock markets. Through tie-up with banks, many brokers consider it practical to reach out to more number of customers through the banking channel. This gives them the opportunity to offer state-of-the-art services to the customers as it allows the customers to seamlessly execute their transactions to suit their needs and demands.

Given the increasing growth of the financial services industry, this trend of associating with each other will prove to be a successful affiliation for banks and brokers in the industry to tap each others' customer base across the country.

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