Journal of Entrepreneurship & Management

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Impact of Fee-Based Services on the Financial Performance of the Banks:An Empirical Study


Affiliations
1 Associate Professor, Department of Management, Faculty of Social Sciences, Dayalbagh Educational Institute, Agra, Uttar Pradesh, India
2 Student, MBA, Integrated, Dayalbagh Educational Institute, Agra, Uttar Pradesh, India
3 Lecturer, Department of Humanities, Anand Engineering College, SGI Group, Agra, Uttar Pradesh, India
     

   Subscribe/Renew Journal


The banking industry forms an integral part of the entire economy. For long, the basic function of banks was to lend and receive funds and earn the difference in the form of interest. But after liberalization, the entry of several private and foreign banks led to intense competition and deregulation of interest. As a consequence, the profitability of banking sector declined considerably. To overcome this growing instability in profits, the banks shifted their focus from fund-based to fee-based activities that involve the receipt of revenue by providing services. Though private banks and foreign banks have extensively increased their share in fee income, public banks still operate majorly on the traditional sources of income generation.

The purpose of this research is to identify the problems faced by banks in expanding their fee-based services and study the effect of increasing share of fee income on the financial performance of the banks. Using the regression analysis and paired t-test, the impact of fee income on the overall profitability is tested. It is observed that fee income has a positive impact on the profitability and financial performance of the banks. Using the trend forecasting, it is validated that increasing the share of fee income in public banks leads to increase in profitability. Moreover, a model is developed that indicates the problems faced by banks in diversifying their fee-based services, the measures to be undertaken and the anticipated outcomes therein.


Keywords

Fee Income, Fund-Based Income, Total Income of Banks, Interest Expended, Profitability, and Diversification.
Subscription Login to verify subscription
User
Notifications
Font Size


  • Aima, A. (2010). Fee-based income critical forbanks. Retrieved from www.hdfcbank.com/htdocs/aboutus/News_Room/pdf/HT_AAima_250310.pdf

  • De Young, R., & Rice, T. (2004). How do banks make money? The fallacies of fee income. Economic Perspectives 28(4), 34-51. Federal Reserve Bank of Chicago.

  • De Young, R. (2003). Noninterest Income and Financial Performance at U.S. Commercial Banks, Supervision and Regulation Department Federal Reserve Bank of Chicago. Retrieved from http://www.chicagofed.org/publications/publicpolicystudies/emergingpayments/index.cfm

  • DeYoung, R., & Roland, K. P. (1999). Product mix and earnings volatility at commercial banks: evidence from a degree of leverage model, Working Paper Series WP-99-6, Federal Reserve Bank of Chicago.

  • Harvard Business Review. (1996). Form Follow Function: The Transformation of Banking. Retrieved from https://hbr.org/1996/03/form-follows-function-the-transformation-of-banking

  • Lepetit, L., Nys, E., Rous, P., & Tarazi, A. (2014). Bank income structure and risk: An empirical analysis of European banks. Retrieved from https://hal.archive-souverees.fr/hal-01098960

  • Laturkar, V. N. (2013). Banks Fee-based policies as new-fangled way for escalating profitability arc. International Journal of Financial Management (IJFM), 2(2). ISSN 2319-491X

  • Rogers, K. E. (1998). Nontraditional activities and the efficiency of US commercial banks. Journal of Banking & Finance, 22(1998), 467-482.

  • Smith, R., Staikouras, C., & Wood, G. 2003). Non-interest income and total income stability. Retrieved from www.bankofengland.co.uk/wp/index.html

  • Stiroh, K. J. (2002). Diversification in banking is noninterest income the answer?, Staff Report, Federal Reserve Bank of New York, No. 154. Retrieved from http://hdl.handle.net/10419/60628

  • Trivedi, S. R. (2015). Banking innovations and new income streams: Impact on banks. Performance MPRA Paper No. 63678, posted 25. April 2015 04:24 UTC

  • Uppal, R. K. (2011). Fee-based activities in Indian Banks. International Journal of Research in IT & Management. Retrieved from http://www.mairec.org

  • Uppal, R. K. (2010). Stability in bank income through fee-based activities. Information Management and Business Review, 1(1), 40-47.

  • Chiorazzo, V., Milani, C., & Salvini, F. (2008). Income diversification and bank performance: Evidence from Italian banks. Journal of Financial Services Research, 33(3), 181-203.

  • Websites

  • Axis Bank Annual Reports: https://www.axisbank.com/shareholders-corner/shareholder’s-information/annual-reports

  • Bank of Baroda Annual Reports: http://www.bankofbaroda.co.in/fin/AnnualReport.asp

  • Canara Bank Annual Reports: http://www.canarabank.com/english/about-us/shareholder-information/annual-report/

  • HDFC Bank Annual Reports: http://www.hdfcbank.com/aboutus/cg/annual_reports.htm

  • ICICI Bank Annual Reports: https://www.icicibank.com/aboutus/annual.page

  • Kotak Mahindra Bank Annual Reports: http://ir.kotak.com/annual-reports

  • Punjab National Bank Annual Reports: www.pnbindia.in/annual-reports.html

  • SBI Annual Reports: www.sbi.co.in/portal/web/corporate-governance/annual-report

  • Union Bank of India Annual Reports:http://www.unionbankofindia.co.in/Aboutus_Investor_AnnualReports.aspx

  • Yes Bank Annual Reports: https://www.yesbank.in/about-us/investors-relation/financial-information/annual-reports


Abstract Views: 273

PDF Views: 1




  • Impact of Fee-Based Services on the Financial Performance of the Banks:An Empirical Study

Abstract Views: 273  |  PDF Views: 1

Authors

Sunita Kumari Malhotra
Associate Professor, Department of Management, Faculty of Social Sciences, Dayalbagh Educational Institute, Agra, Uttar Pradesh, India
Shivangi Sarabhai
Student, MBA, Integrated, Dayalbagh Educational Institute, Agra, Uttar Pradesh, India
Prem Malhotra
Lecturer, Department of Humanities, Anand Engineering College, SGI Group, Agra, Uttar Pradesh, India

Abstract


The banking industry forms an integral part of the entire economy. For long, the basic function of banks was to lend and receive funds and earn the difference in the form of interest. But after liberalization, the entry of several private and foreign banks led to intense competition and deregulation of interest. As a consequence, the profitability of banking sector declined considerably. To overcome this growing instability in profits, the banks shifted their focus from fund-based to fee-based activities that involve the receipt of revenue by providing services. Though private banks and foreign banks have extensively increased their share in fee income, public banks still operate majorly on the traditional sources of income generation.

The purpose of this research is to identify the problems faced by banks in expanding their fee-based services and study the effect of increasing share of fee income on the financial performance of the banks. Using the regression analysis and paired t-test, the impact of fee income on the overall profitability is tested. It is observed that fee income has a positive impact on the profitability and financial performance of the banks. Using the trend forecasting, it is validated that increasing the share of fee income in public banks leads to increase in profitability. Moreover, a model is developed that indicates the problems faced by banks in diversifying their fee-based services, the measures to be undertaken and the anticipated outcomes therein.


Keywords


Fee Income, Fund-Based Income, Total Income of Banks, Interest Expended, Profitability, and Diversification.

References