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"The proposed subsidiary will be a non-deposit taking non-banking finance company (NBFC) and will specialise in selling third party products," SK Goel, CMD of UCO Bank, told ET. The new entity will have an initial capital base of Rs 50 crore and undertake businesses such as loan syndication and sale of insurance and mutual fund products of different companies. He said the bank was in the process of obtaining necessary regulatory approvals for the financial sector arm.
With rising interest rates and margins under pressure, banks are increasingly looking at fee-based income from selling third-party products such as mutual funds and insurance. Banks led by Axis Bank and the State Bank of India have garnered considerable incomes from their fee-based operations in the past year. Fee-based income has emerged as a key component of non-interest income for banks, with treasury operations running into a rough patch this year. Besides, due to very low penetration levels of financial products across the country, banks are seeing a huge opportunity in selling insurance and mutual funds.
Bankers say since no other bank at present has a similar subsidiary, UCO Bank will have a clear edge over its competitors once the entity is set up. Although banks sell insurance products themselves, they are limited to selling policies of only one insurer each of life and non-life segments. A separate corporate entity will have no such restrictions. "Besides, a separate entity will give UCO Bank leeway to employ specialised professionals at market-related pay scale," said Mr Goel.
Meanwhile, UCO Bank has received RBI nod for opening 102 new branches in the current financial year. It had applied for opening 126 additional branches this year.
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