‘We are working on checks to address SEBI’s concern on mis-selling’

Sundaram Finance is at an inflexion point with the recent decision to buy out UK-based partner RSA Group in the non-life insurance business coupled with its strategy to grow business across verticals. It recently elevated Deputy CEO Sunil Subramaniam to the position of CEO of its mutual fund business with additional responsibility to reach newer regions. Sundaram Mutual Fund has kicked off a storm by previously staying away from the Association of Mutual Fund Industry cap on upfront commission at 1 per cent.

In an interview with BusinessLine , Harsha Viji, Managing Director, Sundaram AMC and Director (Strategy and Planning), Sundaram Finance, said with the elevation of Subramaniam he will get room to focus on the group’s larger portfolio of businesses and work more closely with Group Managing Director TT Srinivasaraghavan. Excerpts:

Why have you chosen to stay away from AMFI’s cap on upfront fees?

We are taking a re-look at the circular but we think it could be challenged at the Competition Commission of India. SEBI’s concern on mis-selling is legitimate. I believe the concern on mis-selling is more than pricing. We know that if an industry body restricts pricing, it will be challenged, as was done in several cases (sugar, cement and auto industries faced similar challenges). The problem with the AMFI circular is it does not give the option to stay out. It is sort of a direction which is in violation of competition norms.

How have other MFs accepted this direction?

I cannot speak on behalf of others. Our concern on CCI lawsuits remains and we are looking at the circular again. We have come under a lot of unnecessary flak for opting out. We do not have the time or energy to deal with issues of this type. We all know CCI levies hefty fines running in crores. If SEBI restricts upfront commission we will immediately do it.

We are working on checks and balances to address SEBI’s concern on mis-selling. We increased the minimum investment in high-risk funds to ₹1 lakh from ₹5,000. This straightaway removes pensioners and a lot of retail investors.

Hasn’t the cap on commission hit fund flows?

Forget business. We believe, based on the current circular CCI can investigate and bring a lawsuit. Similar issue was faced by other sectors also. Take banks: RBI sets the trend for lending rate and every bank follows. IRDAI has put tariff on third-party commission; if the same is done by insurance companies they get sued. Tell me, can SIAM (Society of Indian Automobile Manufacturers) set car prices? Moreover, if AMFI tells you to follow a set of pricing and somebody deviates or does backdoor activity to deviate, there is no power of enforcement.

Is the cap on commission too low?

Any voluntary cap on commission has to be reasonable. UK Sinha (SEBI Chairman) said do not pay 8-10 per cent. Why should one go from 8-10 per cent to 1 per cent. If you sell a bank deposit you get paid more than that. Selling an insurance policy, one gets paid 15 per cent. Mutual fund industry does not exist in a vacuum.

The same distributors are selling all these products. An IFA (independent financial advisor) has to deal with his clients for 10 years. If they mis-sell they will be out of business. To say that we will cap commission and mis-selling goes away, does not sit well.

How is insurance business progressing?

We believe insurance business is in an interesting trajectory. We were working with government programmes such as RSBY (Rashtriya Swasthya Bima Yojana). We are pulling out from that and looking at it on our own. Health cost is going up at 14 per cent a year. This is three times the normal inflation. Over 50 per cent of our insurance business has been from auto sector.

The challenge here was that Insurance Regulatory and Development Authority had put price restriction on third party risk. One ends up with huge loss ratio because the awards given by courts on road accidents are increasing year-after-year. The pricing needs to be at least three times more. Our gross return premium was ₹1,600 crore. We consciously dialled back growth in last one year as it has not been that profitable.