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Banking for the privileged
George Smith Alexander | May 20, 2003
You no longer need to be a billionaire to avail of private banking services. Private players such as HDFC Bank, which had entered this sector five years back, offer such services for a fee.
The threshold level for customers to avail of private banking varies from Rs 10 lakh (Rs 1 million) to Rs 3 crore (Rs 30 million). Any individual who has investible funds or assets such as mutual funds, shares, bonds, fixed deposits of the amount fixed by the bank can avail of private banking.
However, HDFC Bank -- instead of asking customers to bring in a specific amount of funds -- charges customers on various type of services it offers.
Entities such as Deutsche Bank, DSP Merrill Lynch, HDFC Bank, HSBC, JM Morgan Stanley and recent entrants such as ABN Amro Bank and ICICI Bank offer private banking services in the country.
HSBC and HDFC Bank are the biggest players in private banking, in India. In this sort of banking, customers rarely walk in to the bank to avail of such services -- they are either directly approached by banks or through referrals.
So what services does a private banker offer? Other than basic services, private banking is focused on wealth management.
Says HSBC's manager, financial planning services, Vijay Venkatram, "The management of wealth depends on the customer's risk appetite, his investment objectives. Once these are understood, the bank sends a written investment proposal on what the bank thinks the portfolio should be."
HSBC also offers custodial services which will include services such as receiving dividend of shares and other entitlements such as buyback proposals.
This will mean that customers will not have to worry about tracking dividends of companies or subscribing to buybacks.
All the paper work will be done by the bank as it has the power of attorney of the client and executes on his/her behalf once it gets written instruction from its clients.
HSBC does not charge for the services from its clients.
"The bank does not charge any fixed fees. The bank earns commission if the customer purchases mutual fund from it. The broking company earns brokerage if the client purchases RBI bonds etc or if he does any equity trading. The bank only charges a marginal fees on the custodial services," Venkatram said.
However, HDFC Bank does not have a threshold limit for offering its services -- it charges customers for services offered. It charges clients from Rs 35,000 a year for tracking portfolio up to Rs 35 lakh (Rs 3.5 million) and Rs 1,00,000 for tracking portfolio up to Rs 1 crore.
These services include equity-related services along with a dedicated advisor.
Services offered include a daily pulse of the market, mutual fund tracking, et cetera.
The bank also offers services between Rs 10,000 and Rs 25,000 per annum for non-interactive products. "We do not want to say that the client has to do a transaction such as broking with us even if the market is not favourable.
We feel that transparency is greater if we charge. One has to take a long-term perspective," says HDFC Bank's Country head equities and private banking Abhay Aima.
The bank, however, waives these fees if it earns money through transactions routed through the bank. Banks have relationship managers who interact with these customers continuously.
The number of customers under one RM could be anywhere from 150 to even 10.
"The number of customers under one RM would depend on how profitable the client is. In the top end of private banking, the number of clients would be fewer, while customisation of products and time spend by RM on individual clients would be much greater," Aima said.
However banks cannot offer portfolio management services to customers. This means that a customer cannot give money to a private banker and ask the RM to invest on his behalf in different financial products.
This service can be offered only by entities other than a bank such as DSP Merrill Lynch, JM Morgan Stanley. A banker therefore will have to call every time and get a written confirmation from the client before any deal is done.
So what exactly is the difference between private banking and normal consumer banking? The difference will be as stark as services offered by a normal and a five-star hotel.
Bankers pamper the cream of private banking clients with exclusive lunches with their top managements, tickets to exclusive shows, among others. The top few accounts are managed by the head of business itself, says Venkatram.
Most of these banks offer only financial services. However these customers are very demanding and banks are not in a position to say no these customers.
"Whenever we don't have any expertise, we find out the relevant people and pass on the information," says Aima.He adds that that the ultimate aim of the RM is to be like a family member or a doctor of the family where the client contacts the private banker for whatever help is required.