Bank of India is returning to the asset management industry after a long interval, by buying a 51% stake in Bharti Axa Investment Managers. Bharti Axa is a joint venture between Bharti Ventures and the Axa group. Bharti had decided to exit its financial services joint ventures with Axa, in the insurance and asset management businesses.
Bharti Axa MF had average assets under management of Rs 176 crore in the July-September quarter, as per AMFI data. In 2010-11, it earned income of Rs 4.1 crore and a loss of Rs 33.3 crore.
Bank of India will acquire a 51% stake in the business, while Axa will retain 49%. Bank of India was one of the earliest entrants in the mutual fund industry, having set up shop in 1990. But it exited the business in 2002 and transferred its remaining schemes to Taurus Mutual Fund. The mutual fund registration was surrendered in 2004-05. The consideration for the stake purchase has not been disclosed.
The decade prior to when BOI shut down its mutual fund business was a tumultuous time for the capital markets. The Harshad Mehta scam of 1992 and the Ketan Parekh scam of 2001 rocked Indian stock markets, and most domestic mutual funds were hit in the aftermath. This was also the period when India opened up its economy, which witnessed dizzying rise in equities as well. Stock market investors had a roller-coaster ride, but most ended burning up their fingers as they lost heavily during the market crashes, having entered the market at its highs.
Public sector banks lost their appetite for the mutual fund business, which became almost dormant. But perception has changed in the past 3-4 years. PSU banks have set up joint ventures with foreign asset managers. Canara Bank has a JV with Robeco of Netherlands, while Bank of Baroda has tied up with Pioneer Global Asset Management.
Earlier, these banks were content distributing third-party mutual funds. But now they want to have their own AMC as well, which will allow them to capture both distribution fees and the value of equity in the AMC business. Banks can leave the specialised activities -product, marketing and investment expertise- to the foreign partners, while they can focus on distribution and the back-end.
Bank of India has 3752 branches spread across India, an overseas presence in 19 countries, and a customer base of 49 million. That gives it a captive base to market its schemes, to people who are already familiar with its brand. The Bank of India share was up by 1.6% at the time of posting, compared to a 0.8% decline in the BSE Bankex, at the time of posting.
Read the press release sent to the BSE here.