Either the financial services industry is full of people who announce business plans for time pass or I have brilliant 20/20 vision.

When Big Bazaar group entered the financial services business, there was a chuckle. However they hired a top notch very (and frightfully) expensive executive….rumored to be paid a few million dollars (US!)

then you had Bharti entering the financial services business – there was a chuckle – wondering what is the value add….

When a big life insurance company had big offices all of us wondered – ‘is it worthwhile?’ – well most of these big offices are now being shut down….

Simple. You are a fund and wondering how you will survive the market forces with the abolishing of the entry load. However you keep hiring people and opening offices – somebody told you long back that funds will get valued on size of AUM, not how well they perform.

Suddenly there is a crunch. There is pressure from Private Equity players – they no longer say ‘perform or perish’…they say ‘perform or acquire’. So a few brokerage firms will get acquired.

However among mutual funds there are no small players at all. All of them have the backing of a big group, and so can continue to be irrational in their decision making than you can see (markets can be irrational far longer than you can be solvent!). No I do not think Escorts is bothered about the fact that Escorts Mutual fund is not making money. Nor is Sahara bothered about its mutual fund business. The bigger ones are making some money at least.

In the life and general insurance business the squeezing of the margins will force some liquidation – because it requires huge pumping of money at regular intervals. So Bharti, and Biyani may be the first to exit, but there will be others too.

Banks are of course very very profitable…..and RBI will ensure that they are profitable. – that is a different post, right?

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  1. Ravinder Makhaik

    In other words, we are in for some nasty surprises in the financial services sector.

    Many are in there not knowing what they are doing and looking for exit options- is that so ??????

  2. hmm..atleast they are exiting without asking to be bailed out.
    now if were the great united socialist states of america,we would have TBTF and allied acronyms…
    actually wait,the UTIs and SBIs are in the same league.

  3. banks in India are so profitable and so uncompetitive that it is the customer who is cheated. For example 40% of the funds with a bank are in a SB or a current account. On this they pay extrememely low interest – inflation is 10%, s.b. account pays 3%. Now it is 3.5%…and till last year there was a convulted, cheating way of calculating interest. If this one single number is FREED…banking may become less profitable. So banks will not need a bail out. Life insurance, mutual funds, etc. are off shoots of banks…so their losses can be borne by the parent bank. We subisidise them, do not worry…

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