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May 30, 2000
The Rediff Business Special/Nikhil Faleiro
Arvind Kumar is a very happy man and has every reason to be so. An employee of Mastek India Limited, Arvind had been allotted 200 shares of Mastek three years ago when 'stock options' was still a foreign term to India.
He had the option to sell or purchase more. When he did get the opportunity to purchase more he did so with glee, swelling his portfolio to over 550 shares. He was now sitting on a gold mine. And Mastek was not the only scrip in his portfolio.
Aping his friend Satish, he invested in mutual funds, stocks and company deposits during the last three years. Friends' advice and newspaper articles too influenced some of his decisions.
One fine day, a colleague casually mentioned the personalised banking services that Hong Kong Shanghai Banking Corporation was offering to its customers.
An HSBC cardholder, Arvind was intrigued. He went to the local HSBC office to inquire about this new service. He was told it was called 'wealth management' or 'private banking': a euphemism for the bank to act as a broker. Through this service, the bank looks after your account, invests the money in it in various financial instruments and triples your money without you having to rack your head over matters fiscal. And all this with you being privy to what is being done with your moolah.
To Arvind, who's a computer software engineer by profession, the world of bourses, money markets and high finance seemed like the other side of the moon. He knew exactly zilch about these arcane terms and even less about the mutual fund industry.
However, his investment bothers came to an end as soon as he was introduced to HSBC's private banking service. All he had to do was sign a few forms and a professional -- who knew about the fiscal world like the back of his hand -- would oversee the multiplication of Arvind's wealth.
The service was initially aimed at the rich and the famous - especially, blue chip companies and clients. But with the new economy throwing up instant millionaires and the stock market boom creating a new breed of wealthy people, there are more takers for the service.
Stock options too changed the fortunes of many an employee. People suddenly seemed to have made a lot of money on the booming bourses. But with the markets losing their lustre, most investors are stuck with their ICE (Information technology, Communications and Entertainment) sector scrips and are not sure what to do about this abrupt change in fortunes.
In a bid to step in and cash in on this, banks have started targeting investors with a vengeance. Financial houses such as ING, HSBC, Banque Nationale de Paris, Deutsche Bank, HDFC Bank, DSP Merrill Lynch, Kotak Mahindra and Prudential-ICICI have all got permission from the Reserve Bank of India, or RBI, to offer discretionary and non-discretionary portfolio management services.
"RBI has permitted us to offer non-discretionary advisory services to service high net worth individuals to enhance their wealth," says As Vijay Venkatraman, manager private banking, HSBC.
This is exactly what Sanjay Shinde realised when he accepted the HDFC wealth manager services. In a dilemma over where to invest the money he had got through bonuses and gratuity, Sanjay left it in the capable hands of the HDFC wealth manager. A simple investment of Rs 100,000, multiplied to Rs 135,000 within five months and then increased to Rs 172,000 in eight months. Something that he would not have managed on his own.
So how did the bank professionals do it? Simple. They played in the market, invested some of his money in the gilt markets, a little bit in the forex market and a large portion was lent out as loans at 12 per cent rate of interest.
It was, thus, not surprising that Sanjay's money doubled within a year. "Harshad Mehta can take tips from these guys," he boasts.
Though many banks are offering this service, they are shy of revealing their numbers. Some indications, however, are that these banks are doing very well in this segment: more and more customers are making a beeline for this service.
HSBC, which launched its service in January 1999, has more that Rs 5-billion assets under management. HDFC has over 8,500 clients, each worth anything from Rs 500,000 to Rs 5 million.
As Jonathan David Lyon, chief executive and country manager of BNP which just launch its 'BNP Prosper Banking' product recently says, "Wealth-creation is a strong factor in India and the improving macro-economic conditions only strengthen this. The number of people in the high-net-worth segment is going to increase exponentially as the software industry booms. These technocrats and new economy entrepreneurs are making an impact on the Indian economy and so are their employees who may not have the time to look after their wealth. This is where we step in."
What does private banking do for the customer? Well, apart from just taking the clients money and multiplying it, private banking service offers the security and safety that was not possible anywhere.
Says Lynn D'Souza, advertising executive, "In the advertising industry, you meet many people who give you loads of advice. Buy this, sell that. But for them it's easy talk, for you it's hard-earned money. These wealth managers do the talking and back it up, and the same time they keep you thoroughly informed. So, even if you are ignorant, you are still aware."
And that is what Banque de Nationale has done with her hard earned Rs 50,000. A nest egg that she had kept for a rainy, it was just accumulating in the bank with a paltry interest till she saw the notices of wealth management. The plan they drew up for her astounded her: Rs 10,000 was invested in certain group A shares, another Rs 10,000 in debt bonds, Rs 5,000 in mutual funds -- this was for quick gains -- and the balance Rs 25,000 in company deposits that gave her an interest of 20 per cent. One half was for quick investment and the other half for safe investment. The money promised to her in six months: Rs 95,000. As she says, "No fuss, no cuss."
Says Raghu Rao, head of personal and private banking (India), BNP, "We don't tell the customer only where and how to invest. What he gets is a whole range of banking and allied services at his doorstep. These include investment planning, education and marriage plans for the children, insurance writing, execution of a will. You name, we have it."
Of course, this professional help does not come for free. So, what are the charges? HDFC and HSBC charge a little over one per cent of the assets per customer. Deutsche Bank takes a share of the success from the assets under management over and above the two per cent it charges if the investments appreciate beyond the promise made. BNP is content with just Rs 10,000 per client that it takes annually.
Says Neeraj Swaroop, head of marketing and retail assets at HDFC Bank, "You have to constantly deliver to the customer and ensure that all his demands are met. Today's entrepreneur is savvy and intelligent. He may not be well versed with intricate financial instruments, but he is aware of what is going on. So we are constantly kept on our toes and have to innovate regularly."
With financial instruments getting more and more complex and the markets more and more volatile, it's time to let somebody else do the worrying for your cash. This is where personal banking plays a vital role; it takes away your worries and brings that smile back to your face. So next time you hear that the NASDAQ or Sensex has fallen do not start popping in stress-relieving pills. Just remember your banker is ahead of the race and has taken care of your interest.
Agrees Rakesh Shah, a physician, "With all the I earn I had to put it in a safe place so as to reap rich rewards. These guys know all the tricks. They are not called 'wealth managers' for nothing: they make you wealthy because of the wealth of information they possess."
Some of the names have been changed to protect interviewees' identity.
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