India picks HSBC, 3 others for $79bn employee fund

NEW DELHI/MUMBAI: India's 3.5 trillion rupee ($79 billion) Employee Provident Fund will be managed by State Bank of India and the asset management units of HSBC, ICICI Bank and Reliance Capital , a government official said.

While the fund is large and the mandate high-profile, fees earned on managing the fund are small and would total less than $3.5 million per year, based on calculations of fees reported by Press Trust of India (PTI) and the current fund size.

ICICI Securities Primary Dealership, a unit of India's largest private sector lender, had quoted a rate of 3 paise (0.066 US cents) per year to manage 10,000 rupees in its bid, while Reliance Capital quoted 4 paise and HSBC 36 paise for the three-year mandate, PTI reported, citing unnamed sources.

State Bank of India, the country's largest lender, which had the mandate to itself until 2008, quoted 1 rupee per 10,000 rupees under management, PTI said.

One paise is one-hundredth of a rupee.

"These are mandates which are very prestigious and the benefits they bring are in terms of reputation, the ability to manage a large chunk of money and the experience of working with the government," Puneet Chaddha, chief executive of HSBC Asset Management in India, told Reuters.

He declined to confirm the fee levels.

SBI will manage 35 percent of the fund, ICICI Securities Primary Dealership will manage 25 percent and HSBC Asset Management Co and Reliance Capital Asset Management will manage 20 percent each, Samirendra Chatterjee, India's Central Provident Fund commissioner, told Reuters on Thursday.

UK-based HSBC and local players SBI and Reliance Capital had been among the managers of the fund until March 31, when SBI became the sole manager after the mandate for the others lapsed.

The ICICI Prudential Asset Management Ltd joint venture had also been a manager of the fund until March but was not among the group selected for the new mandate.

Banks are often willing to earn little or no money to win government business in India, with managers of government share sales in recent years earning tiny fees to handle deals in order to win follow-on and trading business, as well as to improve their position in league tables and win prestige.

About 10 companies had been reported to be seeking the mandate.

SBI could not immediately be reached for comment and the other two managers declined to comment.

Copyright Reuters, 2011