Page 38 - Banking Finance June 2022

ARTICLE

investment involved and have not capitalised on the local
sentiments.

Another important aspect is the role of promoters and the
'fit and proper criterion' and the professionalism needed to
perform in the highly competitive banking landscape. They
have not been able to capitalise on the competitive edge
by virtue of their being a local bank for meeting the needs
of the local people. The performance of the remaining two
LABs that are operating in AP and Telangana is given below:

Key Business Coastal Bank Krishna Bhima
Statistics as on (LAB) Samruddhi
31/3/2020 Bank (LAB)
Deposits in Rs. Cr 551.23 282.93
to be inherently weak with small ticket loans where returns
Advances in Rs. Cr 456.84 199.71
from assets and the spread was not generating good
returns to the shareholders. Their size and scale of operation Profit in Rs. Cr 19.43 2.66
hampered their ability to borrow at cheaper rates in the No. Of Branches 50 29
market and through repos. Their cost to income ratio was
No. Of Employees 333 358
generally high. Their deposit growth was zig-zag and
uneven and loan growth was constricted by limited
Source: respective websites of banks
resources and many had to be closed down because licenses
were cancelled by RBI for breach of norms. In these days of merger and consolidation, the future of
LABs solely rests on their ability to compete with the other
The two well-functioning LABS are located in Andhra players in terms of innovative product offerings, digital
Pradesh and Telengana states but they have not supremacy and mobilisation of low cost resources. It would
experienced steady and sustained growth over their 20 years be an uphill task to maintain their individuality and identity.
of existence. They are not able to match their counterparts It is only a matter of time before the LABs are cannibalised
in terms of product offerings, technology infusion due to by the more established players in the market.

Indian MF industry scores 'average' on fees and expense

scorecard

The Rs 39-trillion domestic mutual fund (MF) industry has scored an 'average' on Morningstar Inc's fees and expense
scorecard - indicating there is more legroom to bring down the cost of investing in MFs.
In 2019, India's score improved from 'below average' to 'average', thanks to investor-friendly regulations introduced
by the Securities and Exchange Board of India, such as a ban on entry loads, up-front commissions, and overall re-
duction in so-called total expense ratios (TERs).
Australia, The Netherlands and the United States are currently in the top-quadrant. The Morningstar study says the
TER for India is higher as still a large number of investors prefer services of MF distributors. Meanwhile, the coun-
tries that scored better have a commission-free model but investors pay a separate fee for advice.
"As such, India largely follows the bundled expense ratio structure with commissions embedded into the expense
ratios of funds. Investors do not incur any additional costs such as advisory fees, platform fees, or front-end loads
when purchasing distributor share classes," says Morningstar.

With rising popularity of 'direct' plans and a shift towards a distribution and advisory activities could help India im-
prove its ranking going ahead, said experts.

38 | 2022 | JUNE | BANKING FINANCE