27-09-2013, 04:10 PM
A STUDY ON TRENDS IN NON-INTEREST INCOME –WITH REFERENCE TO INDIAN BANK
INTRODUCTION:
Banking sector reforms have brought in 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. Hence, non interest income is increasingly capturing
the focus of the banks. Before 1991, the country was caught into a deep economic crisis
which is directly attributable to cavalier macro management of the economy during the
1980‘s. In response to the crisis situation, the government decided to introduce economic
reforms. The financial sector reforms were a major part of this package.
A committee headed by Mr.M.Narasimham was constituted to evaluate the
performance of financial sector. The committee derived its report in 1991 with various
recommendations like reduction in SLR and CRR, deregulation of interest rates and capital
adequacy norms etc. The committee observed that still there is a need to further improve
these reforms. It submitted its second report in 1998 with some new recommendations, under
the chairmanship of Mr.M.Narasimham which were the landmark for banking sector and
improved the performance. As a result of these reforms, liberalization, deregulation of
interest rates and free entry of foreign banks made the banking sector more competitive.
NEED FOR THE STUDY:
In order to meet the challenges of global competition, banks started to restructure their
business. So banks entering with innovative products/services to capture maximum market
share. The banks have started to diversify their bank activities into fee based activities that
earn fee rather interest.
Fee-based earning is the conglomerate of income from various items. However three
heads namely commission exchange and brokerage, exchange transactions and sale of
investment account for over 85% percent of non-interest income of the banks. The banking
sector income is divided into 2 major parts i.e. interest income and non – interest income. The
components of interest income and non – interest income is given below in Table 1.Against
this background; a study titled ―TRENDS IN NON INTEREST INCOME‖ has been
undertaken. The word other income and non - interest income is used interchangeably.
SAMPLE AND SOURCES OF DATA:
The sample for this current study is restricted to one nationalized bank – Indian bank. The data used is primarily secondary data. The financial
data and other data are drawn from the annual reports published by the respective bank.
ANALYSIS & RESULTS:
The first objective is done in two phases. The first section in general deals with interest income and the non – interest in total income of the Indian bank.
The next section in particular, aims at analyzing the percentage of interest income and non -
interest income in total income for 5 financial years ending 2007- 2011. Table 2 presents the
interest and non interest income of Indian bank.
CONCLUSION:
To conclude, competition is prevailing in the Indian economy. The non-interest
income activities of banks are also on the increase in recent years. This has helped to
stabilize the total income of banks. Increase in non-interest income as a source of funds for
banks would also greatly be helpful for maintaining the financial soundness of banks. Interest
is by far the most important cost as income of banks. Now days due to the introduction of e-
delivery channels by various banks the source of other income has changed. The gap between
public and private sectors banks is decreasing. Therefore public sector banks should adopt
more new methods according to changing scenario to increase their non interest income.