Indian Banking: Non-Interest Income - Trends, Issues and Strategies in the Liberalized and Globalized World

Banking sector reforms have brought in their wake a tremendous amount of competition among various players in the financial market. To meet this global competition, they are diversifying their activities into fee-based activities. This diversification is justified by the falling rate of interest as well as increasing income from fee-based activities. Hence, non-interest income is increasingly capturing the focus of the banks as it makes them able to set off the reduction in their interest income due to falling rate of interest.

The paper analyzes the share of interest income and non-interest income from the total income at bank group level and at industry level also. Further, the paper studies the share of each component of non-interest income from the total non-interest income. The paper also examines the correlation of non-interest income with profitability of bank groups for the years 1998-99 to 2003-04. The paper concludes that in the post banking sector reforms period, the share of interest income is declining whereas, the share of non-interest income is increasing in almost all the bank groups. In non-interest income, the share of commission, exchange and brokerage income is the highest as compared to other components of non-interest income.

On the basis of above analysis, the paper suggests some strategies to increase the non-interest income in the era of falling rate of interest and global competition.