Alternate revenue sources form a vital part of income for banks and banks are therefore looking forward towards increasing their profitability through these sources. Some sources of fee income have been available to institutions for many years, but have recently taken on a more dominant position in the overall financial management strategies of banks. These include deposit service charges, credit card fees, fees associated with electronic funds transfer, demat etc. Although banks have made significant headway in generating traditional fee income, for banks to remain competitive with other financial institutions, they need to expand their product breadth and to improve sales, relationships, servicing, and investment know-how. New types of activities that generate fee income include securities brokerage, film financing, equity participation in business, real estate brokerage services, real estate development, real estate equity participation, and insurance brokerage activities. Banks also receive fee income from a number of offbalance sheet items including loan commitments, note issuance facilities, letters of credit, foreign exchange services, and derivative activities (contracts for futures, forwards, interest rate swaps, and other derivative contracts) The essential function of a bank is to provide services related to the storing of value and the extending credit because bank is a financial institution that provides banking and other financial services
Banks can differ markedly in their sources of income. Some focus on business lending, some on household lending, and some on fee-earning activities. Increasingly, however, most banks are diversifying into fee-earning activities.Traditionally fee income has been very stable; but, also traditionally, it has been a small part of the earnings stream of most banks. Although the type of services offered by a bank depends upon the type of bank and the country, services provided usually include:
- Directly take deposits from the general public and issue Savings accounts and Current accounts
- Earning specials like the fixed deposits, recurring deposits.
- Lend out money to companies and individuals
- Issue credit cards, ATM, and debit cards
- Online banking and Internet banking
- Storage of valuables, particularly in a safe deposit box
- Granting loans.
But in the current scenario with immense competition the banks have to look far beyond the traditional practice.Customers look for one stop financial solution so the only solution left with the banks is to diversify. The interest rates are decreasing so banks have to look for alternate sources to generate revenue. Also the lending & borrowing rates are reducing day after day. Therefore the banks are going in for investment and advisory services, portfolio management depository services, debit/ credit cards etc.
1. To study the current revenue sources for banks in India
2. To study the alternate sources of revenue
3. To study the contribution of each alternative source of revenue
Methodology of the Study
The primary was gathered from personal interviews with the bank employees and higher officials. The entire survey was conducted in IDBI Bank Margao branch, which consisted of information on understanding the level of awareness regarding the alternatives sources. Data was also collected through observation during the training period of 2 months from 1st June to 30th July.
Information was drawn from published journals on insurance, mutual funds, in house magazines of the bank, Files maintained by the bank etc. Information was also gathered from newspapers and magazines. Besides data was also downloaded from the Internet.
Limitations of the study
- Limited number of reference books were available
- The study was restricted only to IDBI bank Margao branch and hence may not be applicable to all banks.
- The information available on the internet, Brochures, internal magazine, leaflets was limited
- The employees in the bank had a busy schedule; therefore there was delay in getting the data.
- There was difficulty in getting exact income; as such some data was confidential and not available at the branch level.
- The project was completed in two months time so the time available was limited
Some of the recent developments that have enabled the private banks increase
their fee incomes are:
1. Thrust on retail growth that generates fee income in the form of processing fees.
2. Leveraging of technology to widen customer base for products such as credit cards, debit cards
3. Automated teller machine (ATM) cards.
4. Strong focus on cash management activities on behalf of corporate clients.
5. Increase in non-fund based exposures to corporate clients in the form of letters of credit and guarantees by the adoption of aggressive pricing strategies.