Banks seek nod for PMS leeway

Banks are knocking at the regulator's door for permission to offer discretionary portfolio management services (DPMS) as part of their wealth management offerings.

The Reserve Bank of India (RBI) guidelines do not allow banks to manage investment portfolios of their customers as mutual funds do.

Banks' inability to provide discretionary PMS puts them at a disadvantage as they need to take written permission from their customers for every investment or profit-taking action.

Bankers said "allowing banks to offer discretionary PMS would be a more viable option as they directly fall under systemic regulatory purview than banks floating subsidiaries to circumvent the regulation."

A senior official with a private bank said, "Banks are hesitant to take the subsidiary route because it requires additional capital and doesn't earn enough faith of a customer. Besides, a subsidiary would require separate systems, processes and manpower."

A major player in wealth management services, BNP Paribas, has already announced its plans to set up a non-banking finance company (NBFC) to be able to provide discretionary PMS to its clients.

The other banks considering setting up of subsidiaries for providing discretionary PMS are UTI Bank and Centurion Bank. The RBI is still grappling with the matter amid views that the lines binding the banking industry cannot blur to include stock markets.

The regulator is sensitive about allowing banks to violate their exposure limit to capital markets, which is capped at 5 per cent for most banks.

Allowing banks to offer discretionary PMS would necessitate RBI to give banks an additional leeway of 5 to 7 per cent, depending on the assets under management.

Another key issue is requisite manpower for managing investments on behalf of customers. In this context, banks have suggested that RBI could specify an uniform certification process, including a written test, to maintain a proper quality check on the fund managers banks engage to offer discretionary PMS.