Bajaj Finserv turns up the heat in broking; BFSL joins zero-brokerage team

Bajaj Finserv, India’s second-most valuable non-banking finance company (NBFC), has intensified competition in the already cut-throat broking space. Its fully-owned subsidiary Bajaj Financial Securities (BFSL) has joined the zero-brokerage bandwagon for an annual subscription fee of Rs 500.

Apart from zero brokerage, the brokerage is offering multi-platform trading, call and trade facility and leverage of up to 20 times. While aggressive pricing isn’t a new phenomenon in the Rs 18,000-crore domestic broking space, Bajaj Finserv’s huge success in the consumer finance business and deep pockets have sparked competition fears among incumbents.

Discount brokers such as Zerodha and 5Paisa.com already have ultra-cost pricing models with zero brokerage and flat fees of as low as Rs 10 for intra-day trades in the cash and derivatives space.

Market players said BFSL is yet to aggressively market its offerings. “It remains to be seen additional services they provide besides zero brokerage. If their offerings gain attraction, other players, especially in the full-service space, would be forced to their charges to prevent migration of clients,” said an official with a leading brokerage asking not to be named.

Despite the advent of zero-brokerages, the bank-backed brokerages such as ICICI Securities and HDFC Securities have managed to hold their turf without aggressively slashing their fees.

"Slashing brokerage charges will only make a dent in the customer base of discount brokerages," said Dhiraj Relli, CEO, HDFC Securities. Relli further said that brokerages owned by banks have other advantages over other players.

"When you deal with standalone brokers you have to transfer funds to their account them and call back your funds if you do not invest. Otherwise, the funds keep lying idle with them. In bank brokerage, you do not need to transfer money to the broker's accounts. The amount t is debited from your account only when the order is executed whereas in the case of non-bank brokers you have to essentially the money in the brokers' account," Relli said.

Players in the zero-broking space say the technology and quality of offerings will be a differentiator.

"Zerodha is ahead of the competition because we offer a superior product. The market is divided between active traders and passive traders. And active traders look more at the quality of the product than the pricing," said Nitin Kamath, Zerodha.

Kamath further said that cutting charges may not cut ice with active traders as they end up spending more in securities transaction tax (STT) than brokerage.

Intensification of competition in the broking space comes at a time when the industry is facing growth challenges due to volatile market conditions and rising popularity of mutual funds over direct investing.

A year ago, ICRA had forecast muted growth for the broking industry. For the ongoing fiscal, the revenues were forecast to grow 5-10% to Rs 20,000 crore. In 2017-18, broking industry revenues shot up by 30 per cent to Rs 18,000 crore.