i am doing my research work in Madurai. i am in need of data collection and i have to prepare the questioner for the research regarding the topic - non interest income of commercial banks.
Non-financial income is income from banks and creditors derived primarily from fees including deposit and transaction fees, insufficient funds from funds (NSF), annual fees, monthly account service charges, inactivity fees, checks and deposit fees, etc. . Institutions charge commissions that provide non-financial income as a way of generating income and securing liquidity in the event of higher default rates. Credit card issuers also charge fines, including late fees and over-the-limit charges.
Interest is the cost of borrowing money and is considered a form of income. For some companies, interest represents operating income, which is income from normal business operations. The main purpose of this firm's business model is to sell money, so its main source of income is interest and its main asset is cash. These companies are called financial institutions or banks. Banks rely heavily on interest-free income when interest rates are low and tend to use it as a marketing tool when rates are high.
Non-Interest income
The average company is only based on income other than interest. This is the main way the company generates sales. Financial institutions and banks, on the other hand, earn money by selling money. These companies view interest-free income as a strategic item in the income statement. This is especially true when interest rates are low, as banks benefit from the spread between the cost of funds and the average rate on loans. Low interest rates make it difficult for banks to make a profit, so they must rely on non-financial income to make a profit.
Non-interest income can be anything from the sale of assets to fees for overdraft penalties or withdrawals. Some banks rely heavily on ATM fees, while other banks rely on general transaction fees. Interest-free income is particularly important in business banking relationships. Banks generally charge companies and businesses more for transactions that are not of interest.
Non-Interest Income Drivers
The extent to which banks rely on interest-free fees to make a profit is a function of the economic environment. Market interest rates are driven by reference rates such as the federal funds rate. The rate of federal funds, or the rate at which banks lend money to each other, is determined by the rate at which the federal reserve pays the interest of the banks. This rate is known as the interest rate on excess reserves (IOER). As the IOER increases, banks can make a larger profit from interest income. At a certain point, it becomes more advantageous for the bank to use lowering fees and charges as a marketing tool to attract new deposits, rather than a way to increase profits.