Impact of fee based and fund based services on profitability of banks.docx

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Comparative study of fund base and fee base profitability of bank

Comparative study of fund base and fee base profitability of bank










Any work accomplishment is not single individual; it is only done by help of others. For giving me as much as possible instruction I would like to thank all those people who have rendered me help pertaining to the topic: comparative study of fund base and fee base profitability of bank, which is dedicated to provide service to customer and profit maximization as much as possible. I am very much grateful to PRINCIPAL Dr. Ms. ANCY JOSE and Vice Principal MS. MONA BHATIA, coordinator MS. KAVITA SHAH and project guide MR G.H. RAO. Under whose guidance I was successfully able to complete my project. I wish to thank them for all guidance and suggestion on the topic of my efforts I am thankful to them for their friendly, motivated approach and especially kind behavior towards me.

Towards the end I would like to mention a word of thanks to all the people associated directly or indirectly with making of the project like: Ms. MEHA TODI.



1.Executive summary

2.Research methodology


4.Fund base

5. Fee base

6.Distinguish between fund base and fee base

7.Various type of fund base service

8. Various type of fee base service

9.Advantages of fund base and fee base services




13.Strategies for fund base and fee base services

14.Factors affecting profitability of bank


16.Fund based products flow

17.Fee based product flow

18. Case study of services of IDBI bank


20.Primary research

21.Suggestion for research


23. Conclusion


EXECUTIVE SUMMERY In this competitive- modern world, it is very much important for bank to provide innovative and better services to their customer so that the customer are not switch over to other competitor and through this development they fulfill requirement of the customer. Profit of the bank must be from the fee base and fund base service/product of the bank. Fund base means service offered by bank to the customer bank charges for this as an interest for longer period of time like loan. Fee base means charge charged by bank to the customer as a shorter period of time like in bill discounting. Through this project I would like to share one case study of IDBI bank, which product they provide as a fund base and fee base product and also customers view about all banking service. Customer like and dislike about product, it is innovative or prompt service provided by bank to them.

RESEARCH METHODOLOGY Objective of study:

1. To study the profitability of bank. 2. To identify from which product bank earn more profit.3. To find out which are the challenges that affect the profitability of bank.4. How to overcome from the problem faced by consumer.5. To know the innovative and attractive fund base and fee base profit of bank.

Data collection and sources:

As the challenging topic information is limited in the internet, so I had done a primary collection that is survey to find out more information and IDBI bank had not given me exact profit but through client questionnaire I get an idea of banks profit and complete my project and information of product are from books, reference books, news paper, also little bit from internet.


Primary survey

Secondary survey

Primary survey is a survey which we go and take first hand information without looking on ready mate available sources. And from which we can analyze the data properly.Example: Seminar Feedback, Service Feedback, Suggestion For Improvement. Secondary data is data available readily and not putting extra efforts and not research at all. It is from not on their own behalf but from other sources Example: Internet

Advantage of Primary Survey:

Through this survey I can identify easily customer behavior, like or dislike of people and banking product which attract the customer towards them.

In this whole project I would like to share one experience that is people like more to take services from private bank and not go for public sector bank because this banks gives slow service as the customer dont have time so, they go for prompt service which is offered by bank

Suggestion for IDBI bank has to provide prompt and better service to retain the customer and also take care that their customer is not switch over to another bank that is competitor.

INTRODUCTION The active involvement of people is necessary for rendering fee-based services as the people factor decides the quality of service delivery. Many of the service providers recruit candidates from reputed colleges and institutions, and train them to handle the customer requirements. The process factor in service delivery can be analyzed in terms of the flow of activities, the number of steps involved in each activity, and customer involvement. Providers of fee-based services take all these factors into account for achieving high levels of service quality. The termbank chargecovers all charges andfeesmade by abankto their customers. In common factor, the term often relates to charges in respect of checking. These charges may take many forms, including:

Monthly charges for the provision of an account Charges for specific transactions (other than overdraft limit excesses) Interest in respect of overdrafts (whether authorized or unauthorized by the bank) Charges for exceeding authorized overdraft limits, or making payments (or attempting to make payments) where no authorized overdraft TRADITIONAL ACTIVITIES



FUND BASED: Fund based is service which are offered by bank to its customer .this service is provide regular income to the bank. It is long term in nature. Bank charge interest for this. Fund based product is the flow of fund from bank to customer. In short fund base product means Institute will give money to the outsider or investor or customer. Then flow from bank to customer. Example: If person has taken a housing loan of rupees 1000000 for 10 year at the rate 10.50% and he has to repay loan amount as installment on date which is decided by bank regularly. It is regular income for the bank in upcoming year that is interest plus principle amount as well.

FEE BASED: Fee base is the product bank charge charges against service provided by bank. It is short term in nature.fee base are provided for shorter transaction.fee based transaction bank deduct charges as a commission. In short fee base product means institute is act as a intermediaries and not given any amount to them. Flow from one customer to another or one company to another.Example If person want to discount bills of rupees 10000 than they go to bank and discount a bill, bank charge certain amount like 10%, 12% etc



1) Fund base is traditional interest generating service. 1) Fee base means innovation to traditional service and non interest revenue services.

2) It is for longer period of time.2) It is for shorter period of time. .

3) Long term relationship with its customer.3) Short term relationship with customer.

4) Fund base bank earn interest income.4)fee base bank earn service charges

5) Fund base there is transaction of fund.5) Fee base there is no transaction of fund.

6)fund base risk is high6)fee base risk is low

7) Fund base service is not much popular in bank nowadays.7) Fee base service play an important role in banking revenue.


Profitability of bank is that is difference between interest earned through loan given to the customer and paid to the fixed deposits.Example: @ 14% @ 9% = @5% Received from loan Paid to fixed deposit = Income received by the bank.

Underwriting of or investment in shares, debentures, bonds Dealing in secondary market activities. Participating in money market instrument like commercial papers, certificate of deposits, treasury bills, discounting of bills etc Involving in equipments leasing, hire purchases, venture capital Dealing in foreign exchange market activities Insurance service Factoring Forfeiting Mutual fund DEMAT account Income from government business Credit card Contingent liability Bank guarantee Because of constraint of pages below listed are to be considered as a fund base services which are mostly given by bank.


INCOME FROM LENDING OF MONEY Generally lending of money refers with disposing of the money or property withThe expectation that the same thing will be returned. In other word lending of money is the transfer of securities to a borrower (usually so the borrower can payback a short term liability), in return for a fee. The borrower agrees to replace them in due course with identical securities and the lender risks/returns of the securities in the mean time. INCOME FROM INVESTMENT (SLR)

Every bank is required to maintain at the close of business every day, a minimum proportion of their net demand and time liabilities as liquid assets in the form of cash gold and un-encumbered approved securities. The ratio of liquid assets to a demand and time liability is known as statutory liquidity ratio. An increase in also restricts the banks leverage position to pump more money into the economy.


In simple word Mutual Fund means an investment company that pools the money of a large group of investors and purchases a variety of securities to achieve a specific investment objective. In other word Mutual Fund means a diversified portfolio of securities invested on behalf of a group of investors and professionally managed. Individual investors own a percentage of the value of the fund represented by the number of units they purchased and thus share in any gains or losses of the fund.



Trust (mutual fund company)



Fund manager

Asset liability management

UNDERWRITING OF SHARES, DEBENTURE, BOND Underwriting is a special type of contract where by responsibility is taken or guarantee is given to take up the shares not subscribe for by the investing public. Every prospectus must content an indication as the minimum amount which has to be raised if a company does not receive a minimum subscription of 90% the net offer to the public with in a 60 days from the date of the closure of the issue the company has to refund the entire subscription amount if delay beyond 8 days then company is liable to pay interest. Underwriter gives guarantee the companies can meet the condition of minimum subscription and hence reveling the company from finding a investors Underwriter may charge a fee in the form of underwriting commission


A contingent liability is a liability which may or may not arise in the future Depending on the happening or non happening of an event. A contingent liability is a potential liability. It depends on a future event occurring or not occurring. For example,

If a parent guarantees a daughters first car loan, the parent has a contingent liability. If the daughter makes her car payments and pays off the loan, the parent will have no liability. If the daughter fails to make the payments, the parent will have a liability. Insurance services:

I. Life insurance products

Here bank earned revenue through the selling of life insurance product on behalf of Insurance company. The participation by the bank's customers shall be purely on a voluntary basis. The contract of insurance is between the insurer and the insured and not between the bank and the insured.

II. Non-life insurance products. Non-life insurance means general insurance. General insurance or non-life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event. General insurance typically comprises any insurance that is not determined to be life insurance it is called property and casualty insurance. The contract of insurance is between the insurer and the insured and not between the bank and the insured. INCOME ON GOVERNMENT BUSINESS

In present age apart from rendering all other Personal banking services to itsCustomers/public, every bank in India also works as Agency Bank for undertaking various types of Government Business like: Pension Payment Collection of PPF and Payment of PPF Collection of Government Bonds Collection of Senior Citizen Deposits Collection of Various Taxes, like CBDT, Indirect tax Excise and VAT Receipts/payments work of Postal/Railways Treasury/Sub-Treasury business Franking of Stamps of various documents Collection of Stamp Duty ` DEMAT ACCOUNT DEMAT account is a safe and convenient means of holding securities just like a bank account is for funds. Today, practically 99.9% settlement (of shares) takes place on DEMAT mode only. Thus, it is advisable to have a Beneficiary Owner (BO) account to trade at the exchanges. The term DEMAT, in India, refers to a dematerialized account for individual Indian citizens to trade in listed stocks or debentures, required for investors by The Securities Exchange Board of India (SEBI). In a DEMAT account, shares and securities are held electronically instead of the investor taking physical possession of certificates. a DEMAT account is opened by the investor while registering with an investment broker (or sub broker). the DEMAT account number is quoted for all transactions to enable electronic settlements of trades to take place. Access to the DEMAT account requires an internet password and a transaction password as well as initiating and confirming transfers or purchases of securities. Purchases and sales of securities on the DEMAT account are automatically made once transactions are executed and completed.

Depository participant account

DP means Depository Participant of CDSL (Central Depository Services (India) Limited). A DP account is necessary if you intend to hold your securities and/or trade in the electronic form. The DP account must be opened by you with a Depository Participant, which may or may not be your broker. In India, a Depository Participant (DP) is described as an agent of the depository. They are the intermediaries between the depository and the investors. The relationship between the DPs and the depository is governed by an agreement made between the two under the Depositories Act. In a strictly legal sense, a DP is an entity that is registered as such with SEBI.


Hire purchase :-

Hire purchase is the legal term for a contract, in which persons usually agree to pay for goods in parts or a percentage at a time. It was developed in the United Kingdom. It is also called closed-end leasing. In cases where a buyer cannot afford to pay the asked price for an item of property as a lump sum but can afford to pay a percentage as a deposit, a hire-purchase contract allows the buyer to hire the goods for a monthly rent. When a sum equal to the original full price plus interest has been paid in equal installments, the buyer may then exercise an option to buy the goods at a predetermined price or return the goods to the owner. If the buyer defaults in paying the installments, the owner may repossess the goods, a vendor protection not available with unsecured-consumer-credit systems.

For example:

HP is frequently advantageous to consumers because it spreads the cost of expensive items over an extended time period. Business consumers may find the different balance sheet and taxation treatment of hire-purchase goods beneficial to their taxable income. The need for HP is reduced when consumers have collateral or other forms of credit readily available.

Venture capital:-

The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as biotechnology, IT, software, etc. The typical venture capital investment occurs after the seed funding round as growth funding round (also referred to as Series Around) in the interest of generating a return through an eventual realization event, such as an IPO or trade sale of the company. Venture capital is a subset of private equity. Therefore, all venture capital is private equity, but not all private equity is venture capital.

Working Capital Finance:-

We offer working capital facilities - both fund-based and fee-based. Fund-based working capital products include cash credit, overdraft, bill discounting, short-term loans, export financing (pre-shipment as well as post-shipment). Fee based facilities include letters of credit and bank guarantees. Working Capital facilities are provided to finance the day-to-day business requirements. Funding requirements are structured to finance procurement of raw materials/stores and payment towards manufacturing costs and other overheads. Sales are financed against sundry debtors/ receivables. The Bank offers a combination of operative cash credit and working capital demand loan to meet the domestic working capital requirements of our clients.

Short Term Finance:- The Bank offers short-term loans for a period ranging from 3 months to 12 months to sound corporate for meeting their specific short-term working capital requirements. The funds are provided with interest rates either linked to our BPLR or at a fixed rate with varying repayment patterns.

Bill Discounting:- This product enables corporate to fund their operating cycle right from the stage of procurement to sale. Bill Financing is extended by Indus India bank to its clients at competitive rates Letter of credit backed bill discounting and clean bill discounting are the convenient mode of financing for domestic trade transactions BOE could be broadly classified into Demand and Usage bills. Export Finance:- As an important incentive to the exporter community for boosting exports, financial assistance in Rupees is extended to exporters on priority basis on relatively liberal terms. Such finance is provided both at pre-shipment stage and at post-shipment stage. Interest charged on export credit is exempted from the purview of interest tax.

Term Lending:- We offer term loans to both Industrial as well as Infrastructure sectors promoted by strong business houses. These loans are for a period of 3-5years with a moratorium period. Interest rates could be fixed or floating linked to the bank.

Buyers Credit / Suppliers Credit: This facility provides total flexibility to corporate to utilize the particular sanctioned limit of credit. The terms of the line of credit are either predetermined or negotiated at the time of a ailment. This facilities used as and when the client has a requirement


Credit card Demand draft Real Time Gross Settlement Remittances FOREX services Merchant banking Travelers cheque Letter of credit Loan syndication Project advisory service Service related to foreign company and NRI Merger and acquisition Custodian service Stock broking Wealth management Advisory service Joint venture Services to NRI Portfolio management

Because of constraint of pages below listed are to be considered as a fee base services which are mostly given by bank.



Apart from accepting deposits and lending money, banks also carryout, on behalf of their main components fee based income areas under. Apart from accepting deposits and lending money, banks also carry out, on Customers the act of transfer of money both domestic and foreign from one place to another. This activity is known as remittance business. For Example, Remittance Business, Bank 'A' at a place 'a' accepts money from customer 'C' and makes arrangement for payment of the same amount of money to either the customer 'C' or his "order" i.e. a person or entity, 'C' as recipient, through Either a Branch of Bank 'A' or any other entity at place 'b'. TRAVELERS CHEQUE Traveler`s Cheque is a printed piece of paper that you sign and use as when money are travelling. It can be replaced if it is lost or stolen. The Traveler`s Cheque issued by a financial institution which functions as cash but is protected against loss or theft.


Demand draft, also known as a remotely created check or a Tele-check, is Check a seller with a buyer' checking account number on it, but without the buyers signature. Guaranteed by XYZ Bank. The seller deposits check into his or her Bank Account and the check then clear out of the buyer's account A demand draft or "DD" is an instrument most banks in India use for effecting transfer of money. It is Negotiable Instrument. A method used by individuals to make transfer Payments from one bank account to another. Demand drafts are marketed as a relatively secure method for cashing checks.

CREDIT CARD A credit card is part of a system of payments named after the small plastic card issued to users of the system. It is a card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services. Credit cards are issued after an account has been approved by the credit provider, after which cardholders can use it to make purchases at merchants insured.


A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will cover it. A bank guarantee enables the customer (debtor) to acquire goods, buy equipment, or draw down loans, and thereby expand business activity.



Banks generated the revenue from foreign exchange transaction. Here difference between forward exchange contract transaction and actual Transaction. Foreign Exchange refers with the system by which the type of money used in one country is exchanged for another country's money, making international trade easier.

WEALTH MANAGEMENT Wealth management is an investment advisory discipline incorporates financial planning, investment portfolio management and a number of aggregated financial services. High net worth individuals, small business owners and families who desire the assistance of a credentialed financial advisory specialist call upon wealth managers to coordinate retail banking, estate planning, legal resources, tax professionals and investment management. Wealth management can be provided by large corporate entities, independent financial advisers or multi-licensed portfolio managers whose services are designed to focus on high-net worth customers. Large banks and large brokerage houses create segmentation marketing-strategies to sell both proprietary and nonproprietary products and services to investors designated as potential high net-worth customers. Independent wealth managers use their experience in estate planning, risk management, and their affiliations with tax and legal specialists, to manage the diverse holdings of high net worth clients. Banks and brokerage firms use advisory talent pools to aggregate these same services.

RTGS Real time gross settlement systems (RTGS) are a funds transfer mechanism where transfer of money takes place from one bank to another on a "real time" And on "gross" basis. Settlement in "real time" means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. "Gross settlement" means the transaction is settled on one to one Basis without bunching with any other transaction. Once processed, payments are final and irrevocable and for doing these transaction rupees is 200000 minimum required.

In India RTGS transactions timing would be: In week days 9.00am to 4.00pm In Saturday 9.00am to 2.00pm


A letter of credit is a major tool of trade finance. While a conventional letter of credit may involve a temporary loan based on interest, an Islamic bank may extend such a facility in the following manner using the mechanism of agency. It is a letter from a bank guaranteeing that a buyers payment to a seller will be received on time and for the correct amount. If the buyer does not make payment, the bank will honor any outstanding payments. Bank also ensures that seller will not be paid until there is confirmation of goods shipment / receipt. A letter of credit often used in international transactions to address uncertainties owing to distance Guarantee has become a necessity, especially in international trade where the sellers and the buyers do not know each other, and the payment of the price by the purchaser cannot be simultaneous with the supply of the goods. A Letter of credit means a document issued by a bank that guarantees the payment of a customer's draft; substitutes the bank's credit for the customer's credit A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. A standard, commercial letter of credit (LC) is a document issued mostly by a financial institution, used primarily in trade. Finance, which usually provides an irrevocable payment undertaking. Parties involve in letter of credit:


Issuing bankPaying bank

Issuing bank: This bank act on behalf of and under instructions from the applicant, who is the buyer of goods or services. And it is act as a give payment on behalf of the importer. Paying bank: This bank act on behalf of and under instruction from the supplier, who is the seller of the goods or services. And it is act as a receive payment on behalf of the exporter. Importer: This is person act as a buyer of the goods when buyer and seller not knowing each other then the bank will act as a intermediaries for the transaction and bank charge charges for this. Exporter: This is person act as a seller of the goods they export the goods at the importers place and take money of the goods.


Life insurance products

Here bank earned revenue through the selling of life insurance product on behalf of insurance company. The participation by the bank's customers shall be purely on a voluntary basis. The contract of insurance is between the insurer and the insured and not between the bank and the insured.

Non-life insurance products. Non-life insurance means general insurance. General insurance or non-life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event. General insurance typically comprises any insurance that is not determined to be life insurance it is called property and casualty insurance. The contract of insurance is between the insurer and the insured and not between the bank and the insured.


Financial assistance is available for the purpose of providing hire purchase loans against motor vehicles. Other equipments viz. dumpers, excavators, construction and mining equipments etc., are also covered under the scheme. The corpus amount is provided to existing reputed finance companies who are engaged in this business. Under the scheme, the assisted finance company enters into a Memorandum of Understanding. Subsequently, it gets individual agreement executed between the vehicle operator and MPFC, whenever the corpus fund is used. The corpus fund assistance is a onetime assistance and needs to be utilized within a specified period. All risk of finance under the scheme is to be undertaken by such assisted company.






Infrastructure developmentCreate property with minimum installmentShorter earning in the form of commissionConvenient

InnovationSecurityOne time transaction Transparent services

Diversification of lossesConvenientEarning but more focus on customer satisfaction Easy to understand by pamphlet also

Continuous incomeGetting services of better productFor retained customer no need to explain in detailInstant service

Earn for longer period in the form of interestReasonableNo riskEasily settled foreign transactions

SOURCES FROM THE BANK IS GETTING PROFIT When we talk about the profitability solutions for the banks it is calculated by using information from various sources. Typical profitability calculation starts with the Net Interest Income. This is the difference between the Net Interest income and the charge for the funds. Also Interest expenses and the credit for the funds for the deposit products are used for calculations. This information is available from the Fund Transfer Pricing (FTP) solution. The difference between these gives the Net Interest Margin (NIM). This is one part of the revenue. The other part could be from the various fee based products or commission from the third party products. This makes the total revenue from the customer.

Bank is getting profit from two major sources that is;1) Interest2) CommissionINTEREST: for bank major sources of income is from interest and bank is charge majorly against loan and get long term income from lending to the customer who is actually need the money. Loan from long and short term period will be decided and interest will paid by the customer to the bank for a longer period of time (which is decided by bank) interest is getting by the bank it is from 1 to 5 year for short term and 1 to 15 year for long term.

COMMISSION: Bank is getting commission from various sources like for demand draft which is taken by the college from the student and bank will charge for it for 20000 demand draft bank will charge 105 rupees that is additional income for bank. Bank is also get commission from various services given by them like: merchant banking, underwriting, insurance, venture capital, loan syndication, bank guarantee, bills of exchange, foreign exchange transaction, project collaboration, import export of goods.


Investment in capital market and real estate: Fund base income comes chiefly from interest spread, lease rental, income from investment in capital market and real estate. Major income: A major part of the income is earned through fund based activities. At the same time, it involves a large share of expenditure also in the form of interest and brokerage. One customer can have multiple accounts with a bank. For example, a savings account, a car loan account, a housing loan account, a locker etc. The profitability can be calculated for each of these accounts. Quality investment: In recent time, a number of financial companies have started accepting deposits by offering a very high rate of interest when the cost of deposit resources goes up lending rate should also go up. It means that such companies have to compromise the quality of its investment. Largest income from fee base services: Fee based income has its sources in merchant banking, advisory services, custodial services, loan syndication; another example is the commission income for particular products like demand drafts and more. Fee based income shares generally affect the overall profitability of the company. Less risk: Fee base service is giving more income to the bank and also it is less risky because short term transaction is between 1 to 30 days, for medium term transaction 1 year to 5 year, for large term transaction 5 years and above.


Flexibility: Flexible recurring deposit allows a customer to deposit any amount at any point of time. Customers also have an option of depositing money by giving a standing instruction. Better returns: Customers can earn recurring deposit interest rates on their account while enjoying the freedom of not having to deposit every month. Sharing: Customers can choose to share their wishes on Face book and let their friends and family is part of their dreams. Contributions: Contribute and help him attain his aspirations faster. Contributions can be made from any bank account using a VISA debit card. Competition: There is no doubt that. In the scenario of severe competitiveness, banks will have to evolve comprehensive criteria for price determination of banking products and services. One of the objectives of the present study is to evaluate whether price sensitivity is one of the criterion of price determination excluding the parameters costs and enhancing their earnings. Consider for costing bank products and services.

Customer satisfaction: The main objective is to determine the right pricing strategies based on customers' perception on charges recovered and costs incurred to the bank. Hence, any determination of pricing of products and services should provide adequate cushion to the banks for recovering pricing of banking products and services is a key variable in customer retention as well as customer attraction. .


Less advance: Financial service covers a wide range of activities they can be broadly classified into two activities traditional and modern. Modern acting as a trustee to the debenture holder. Not knowing: Advising the client on the q of selecting the best source of fund of fund taking into consideration the quantum of fund required their cost, landing period. No knowledge: Guiding corporate customers in capital restructuring guiding the client in the minimization of the cost of debt and in the determination of the optimum debt equity mix Exchange rate risk: Hedging of a risks due to exchange rate, interest rate risk, economic risk and political risk by using swaps and other derivative products. Not publically disclose: portfolio of large public sector corporation Planning for and assisting for their smooth carryout promoting credit rating agencies for the purpose of rating companies which want to go public by the issue of debt instrument


1. Customer Relationship: 'Knowing Your Customer' is a concept, which is easier said than practiced. Banks face several hurdles in achieving this. In order that the product lines are targeted at the right customers, it is imperative that an integrated view of the customers is available to the banks. The benefits flowing out of cross selling and up selling will remain a far cry in the absence of this vital input. In this regard, the customer databases available with most of the public sector bank.

2. Mechanization & Technology Issues Retail advances calls for huge investments in technology. Whether it is setting up of a customer relationship management system or establishing loan process automation or providing anytime, anywhere convenience to the vast number of customers or establishing channel / product / customer profitability, technology plays a pivotal role. The issues involved include adoption of the right technology at the right time and at the same time ensuring volumes and margins to sustain the investments. It has also to be added in the same breath that without adequate technology support, it would be well nigh impossible to administer the growing retail portfolio without allowing its health to deteriorate. Further, the key to reduction in transaction costs simultaneously with increase in ability to handle huge volumes of business lies only in technology adoption.

3. Organizational Revamping: It is of utmost importance that the culture and practices of an institution support its stated goals. Having decided to take a plunge into retail advances, banks need to have a well-defined business strategy based on the competitive profile of the bank and its potential. Creation of a proper organization structure and business operating models, which would facilitate easy workflow, are the needs of the hour. The need for building the organizational capacity needed to achieve the desired results cannot be over-stated. This would mean a strong commitment at all levels, intensive training of the rank and file, putting in place a proper incentive scheme, etc. As a part of organizational alignment, there is also the need for setting up of an effective Corporate Marketing Division. 4. Innovation of New- products: Product innovation continues to be yet another major challenge. Even though bank after bank is coming out with new products, not all are successful. What is of crucial importance is the need to understand the difference between novelty and innovation the days of selling the products available in the shelves are gone. Banks need to innovate products suiting the needs and requirements of different types of customers.

5. Pricing Mechanism: The next challenge is to have appropriate pricing policies in place. The industry today is witnessing a price war, with each bank wanting to have a larger slice of the cake that is the market, without much of a scientific study into the cost of funds involved, margins, etc. The strategy of each player in the market seems to be undercutting others and wooing the clients of others. The situation cannot remain this way for long. This will be one issue that will be gaining importance in the near future.

6. Human Resources Challenges: A realization has to drawn that automating the inefficiencies will not help anyone and continuing the old processes with new technology would only make the organization an old while technology and product innovation are vital, the soft issues concerning the human capital of the banks are more vital. The corporate initiatives need to focus on bringing around a front line revolution. Though the changes envisaged are seen at the front line, the initiatives have really to come from the 'back end The initiatives should aim at improved delivery time and methods of approach good manners and best behavioral models, formulating objective appraisals, bringing in transparency, putting in place good and acceptable reward and punishment system, facilitating the placement of youthful staff in front-line, defining a new role for front-line staff by projecting them as sellers of the products rather than clerks at work and changing the image of the bank from a transaction provider to a solution provider.

7. Focus on Rural Penetration: There is still a vast market available in rural India, which remains to be tapped. Multinational corporations, as manufacturers and distributors, have already taken the lead in showing the way by coming out with exquisite products, packaging and promotion, keeping the rural customer in mind. The success of banks depends on the wide array of products and their effective cross-selling using technology for more efficiency and for providing better and speedier service. It appears that the scope of generating profit through retail advances rather than through any of the traditional methods has become one of the attractive options to the bank. However, it can be stated that while there are so many players in the fray, only those capable of addressing the above critical success factors in the most efficient way, would emerge successful.

8. Business Process Re-engineering: Business Process Re-engineering is yet another key requirement for banks to handle the growing retail portfolio. Simplified processes and aligning them around delivery of customer service impinging on reducing customer expensive one. Workflow and document management will be integral part of process changes. The documentation issues have to remain simply both in terms of documents to be submitted by the customer at the time of loan application and those to be executed upon sanction.


STATEMENT OF THE PROBLEM: There are very few studies done on the shift to fee based activities from fund based activities. It is interesting to evaluate whether the fee based services have an impact on the banks profit margins and retention of its customers. Banks are witnessing a growth in their non-interest or fee-based incomes because of changing psychology of customers who favor convenience as major factor.

OVERVIEW OF LITERATURE Most of the studies about profitability aspect of banking sector have studied the performance of banks during the post-liberalization period. Days are gone when RBI use to dictate the interest rates of banks through direct controls. This naturally resulted in assured interest income too with fixed interest gap for all banks. Various studies have been done so far on profitability aspect of banks. Their impact on profitability and customer behavior which justifies the research study on this aspect.

CONCEPTUAL FRAMEWORK There is an analytical framework in which the profitability of banking institutions is determined. Profit is a variable dependent on factors like income from interest, other sources including fees and commission, recurring expenditures and provisions made. Fee-based income constitutes a major portion of a bank's other income as well as utility of bank services made by its customers.

HYPOTHESIS OF THE STUDY The null hypotheses framed are that there is no linkage in fee based policies of banks and their profitability. That there is no linkage between fees based policies and the customer behavior.

RESEARCH METHODOLOGY: Coverage Universe of the Study The universe of the study consists of the banks in Maharashtra Public, Private and Urban co-operative banks. Having their corporate head offices located within Maharashtra and working with CBS. This research specifically focus upon banking only where banking (branch level) is found appropriate for studying customer psychology and wholesale banking suits the profitability aspect.

RESULTS AND DISCUSSIONS The statistical figures clearly indicate an increasing share of other income sources of banks. The liberalization policy with advanced technology base has made banks to explore well even in commodity market which has elevated the Graph of income from this source significantly. On the basis of these parameters the study concludes the following: Share of Commission Exchange and Brokerage in Other Income days are gone when bankers were traditional based dealing priority with lending and deposits. Today they are primarily merchant bankers dealing with so many transactions ranging from liaison of an insurance policy to investment in stock markets by their client.


1) Go to the bank 2) Bank is very much interact and attach with you 3) Security collect from you4) Loan amount given5) With a fixation of date you have to pay interest and pay the money back to the bank.


1) Discount a bill with a bank.2) Customer required immediate cash. 3) On due date bank collect from another person with whom customer has to recover the money.4) Deduct charges and give amount to client.



IDBI Bank Limited is today one of Indias largest commercial bank. An Indian financial service company headquartered Mumbai, India. Founded in July 1964 RBI categorized IDBI as an "other public sector bank". It is Headquarters in India CEO: Rajender Mohan Malla, Key people is M.S. Raghavan (CMD) Bal Krishna Batra, Employees 15,435 (2012)

Products: Consumer banking, corporate banking, finance and insurance, investment banking mortgage loans, private banking, private equity, wealth management, Agriculture Loan.

Objectives of IDBI The main objectives of IDBI are to serve as the apex institution for term finance for industry in India. Its objectives include: Co-ordination, regulation and supervision of the working of other financial institutions such as IFCI, ICICI, UTI, LIC, Commercial Banks and SFCs. Supplementing the resources of other financial institutions and there by widening the scope of their assistance. Planning, promotion and development of key industries and diversification of industrial growth. Devising and enforcing a system of industrial growth that conforms to national priorities.

FunctionsThe IDBI has been established to perform the following functions- To grant loans and advances IFCI, SFCs or any other financial institution by way of refinancing of loans granted by such institute To grant loans and advances to scheduled banks or state co-operative banks by way of refinancing of loans granted by such institutions which are repayable in 15 years. To grant loans and advances to IFCI, SFCs, other institutions, scheduled banks, state co-operative banks by way of refinancing of loans granted by such institution to industrial concerns for exports. To discount or re-discount bills of industrial concerns. To underwrite or to subscribe to shares or debentures of industrial concerns. to subscribe to or purchase stock, shares, bonds and debentures of other financial institution To grant line of credit or loans and advances to other financial institutions such as IFCI, SFC To grant loans to any Industrial concern. Guarantee: To guarantee deferred payment due from any industrial concern. To provide technical, legal, marketing and administrative assistance to any industrial concern or person for promotion, management or expansion of any industry. To guarantee loans raised by industrial concerns in the market or from institutions. Provide consultancy and merchant Planning, promoting and developing industries to fill up gaps in the industrial structure in India to act as trustee for the holders of debentures or other securities.

The IDBI bank advantages: Maximum funding Attractive rate of interest Interest rate on daily reducing balance Simple documentation Personalized service

Persons loan from IDBI bank is targeted to the salaried individuals. Following are the variants of personal loan Personal loans to salaried individuals Salary account with in- built overdraft facility Over draft facility to pensioners of IDBI bank ltd

IDBI banks loan against property can be availed against pledge of: Equity shares dematerialized shares up to 50% of the market value. Mutual funds units mutual funds up to 50% of NAV RBI bonds (8% saving bond) Life insurance policy(margin15% of surrender value) National saving certificate(margin 20% of accrued value) Kisan vikas patra (margin 20% of accrued value)

IDBI bank also provides 24*7 hour services:

Phone banking: It is availed through IVR that is interactive voice response to our phone banking executive. IVR is self service for customer to access the banking service. With customer ID and telephone personal identification number.

Mobile banking technology: Through sending SMS to each customer getting cheque book alert, statement request, balance enquiry, bill payment, last three transactions, DEMAT account.


HOME LOAN IDBI provide home loans or constructing a home, purchasing a ready built house, residential plot and even for re-financing existing loans you may have availed from other banks or housing finance companies.

ADVANTAGES OF IDBI BANK ULTRA FLEXIBLE HOME LOANS Maximum funding Flexibility of choosing between floating or fixed interest rate Attractive rate of interest EMI on daily reducing balance Personalized door to door services Simple documentation Legal and technical assistance Balance transfer facility Reassessment and adjustment of applicants loan eligibility in case of change of income and residence status.

EDUCATION LOAN Education loan from IDBI bank aims at providing financial support to needy students for giving higher education in India and abroad. With an area of services to choose from an easy repayment options, IDBI banks makes sure complete financial banking.

AUTO LOAN: With IDBI Bank's auto loan you get a higher sanction for funding your dream Vehicle and also quick processing of the loan. It is Industry Banking, Financial service, non banking financial institution, mutual fund etc.

Loan against property: IDBI bank provide loan against property which can be used for: Education Business Marriage Purchase or improvement of property Medical treatment or any other personal need


1) Do you like all product of IDBI bank (a) Always (b) Yes(c) No(d) Never or other bank

25% of the people like IDBI bank service but not that extent and they suggest they also improve service for normal people.

10% of the people never go for service because they think that the service only to develop industry not for them.

Majority of they go for ICICI because they think that bank provide prompt service, innovative product, uniformity create cooperate atmosphere. 2) You took a loan for tax deduction from the bank.(a) No for personal use(b) No for purchasing house (c) Yes obviously, Educated people always want to save tax(d) Yes because show less income

35% of person earning high then the professionExample: Most of the time in the diamond market they provide salary in white and black money only and if they got cheque then for tax saving they take a loan to reduce tax or eliminate tax.

10% take for personal luxury and comfort like auto loan, Vehicle loan.

Majority of they take for meeting basic needs of life like house.

3) For safer custody of money in which instrument you invest(a) Insurance companies (b) Fixed deposit(c) Shares(d) Mutual fund

75% person wants to secure their money, having no risk. Therefore, they invest in bank fixed deposit.

10% invest in shares because they think if you take more risk in the market if market is stable or at growing stage you earn a lot and if market is not good then you lose your money.

Some of they are not aware about mutual fund for that they have to advertise and interact more with customer

4) Return must be high in this following product (A) Bank (b) Share market (c) Capital market (D) Insurance

25% invest in share market, they are risk taker and only for capital appreciation irrespective of market condition.

65% think that always return is fixed in bank especially in fixed deposit where the risk is not there at all.

Now-a-days people also aware about insurance they invest for protecting life of family member.

5) For you we serve as a loan product which did you like most(a) Education loan(b) Marriage loan (c) Purchasing property- housing loan(d) Vehicle loan

As per the todays competitive world education is compulsory each people do not have capacity to pay for it, 10% people think that for doing MBA we must have to take loan because very high fees but we prefer private bank only for faster service and IDBI bank documentation is high, very slow process for loan.

2.5% people taken loan for marriage if they do not have capacity.

35% people take housing loan for their living better life with their family.

6% taken loan for their comfort and luxury provide to their family member and now a days it is normal to take a loan for luxury by common man.

SUGGESTION FOR RESEARCH That there is no linkage in fee based policies of banks and their profitability. That there is no linkage between fees based policies and the customer behavior.

IDBI bank provide better service to the customer as per over all survey 46% like IDBI service. Through this survey we identified that ICICI bank provide betterService than IDBI in following area:

Fastest cheque clearing procedure Fast in giving services to the customer Uniformity Need and understanding of customer behavior Prompt action of complaint Responsive in nature

IDBI must create innovative product so customer attract automatically. ICICI must create innovation so that the customer is not switch to another bank. IDBI must have to retained customer and by quality product they get new customer also.


Big blue is going big brother, providing technology to Indias INDUSIND bank which tracks customers location and activity and uses the information to push them promotions. The technology is embedded within the bank various channels-Internet, ATM, SMS, phone and branch as part as of a wider overall of its front office aimed at improving personalization . Sumant kathpalia , head , consumer banking , indusind bank says: IBMs new technology helps us understand customers individuals and prepares us to responds more pervasively to the growing opportunities within the digital , social and mobile market places.. In a first- of- its- kind deployment , indusind is using the technology developed by IBM research in a bid to connect customers with contextual information which can be used to offer personalized, location- based recommendation an offers a real time. Bank customers who opt in to service will see their location and activity logged and cross-referenced, meaning that as they conduct daily transactions-such as buying airline tickets or shopping at the mall-they are sent relevant promotions by e-mail and text. Retail inflation based saving certificates from November: raghuram rajan. The reserve bank will introduce consumer price inflation-linked savings certificates by November to provide sum cover to households, rahuram rajan.


As per the growth opportunities especially in banking set witness fast growth due to innovative product, retained customer, service quality, high consumption.

High growth of banking sector emerging fast growth and rapid growth into the economy. Person is highly interested in personal growth and increases their standard of living which automatically leads to developed country as well. Banks now undergone major transformation like in technology, infrastructure, service, and also innovative strategy like cross selling, packed selling, at the same time new players are also entering this higher growth sector, creating competition between different banks. Also public sector bank adopting new strategy, Innovative product and try to give quality product to retain customer, Example: SBI bank opened a branch in villages with the help of government provide loan to farmer and also improve habit of customer to invest in bank and not keep with them if they kept with them then it is not provide any interest or capital appreciation.


There is a need of constant innovation in banking product through this more finance shift from customer to bank and bank is not keep all the money with them they invest in different shares, debenture, capital market, money market, loan syndication, loan given to other bank from this bank earning profit and distribute them to the customer.

The bank required to developed their product by innovative scheme, differentiation in product, reengineering , micro planning their product marketing of product in such a way customer attract on the spot and buy product immediately.

Growth of banking industry in future would depend upon the capacity building of the bank to meet the challenges and make use of this opportunity in such a way that bank will get more profit and well development in banking industry.

Bank has to understand interest area of the customer and developed product as per their requirement Example: Today modern world the education is compulsory, studying abroad is not possible for common man so through bank they can go for studying abroad if interest is very high, no quality service, no response then no one will go for this.


Ujjwala Shahi: Banking in India-past, present and future. O.P. Agarwal: Modern banking of India IDBI bank IDBI website Innovation in IDBI banking product- Kiran M. Rege P.R. Brahmananda: money, income, prices in 19th century India. K.C. Sharma: Modern banking in India Indian financial system: Niti Bhasin.

Articles related to IDBI bank latest news: IDBI Bank to declare Kingfisher Airlines wilful defaulter:

Vijay Mallya: CHENNAI: IDBI Bank has started the process of declaring Kingfisher Airlines a "wilful defaulter". The airline owes the bank Rs 750 crore. IDBI is among a consortium of banks which has lent money to the beleaguered airline. Kingfisher is the country's top loan defaulter with banks having an exposure of Rs 7,000 crore.

Other banks like SBI (the lead bank for the Kingfisher loan) and Punjab National Bank are also ready to declare the airline a wilful defaulter after a report by Earliest & Young pointed to gaps in its running. United Bank of India, which is also part of the consortium, has already initiated process to declare the company a defaulter.

"The process is in an advanced stage and we would send out a notice declaring them as a wilful defaulter in a couple of weeks. Last week, we submitted all papers relating to the account, such as statement of accounts, account opening form and cheque books, to the CBI for the agency to start a preliminary enquiry against the company," M S Raghavan, chairman and managing director of IDBI Bank, said on Saturday.

IDBI bank started to give housing loan on festivals

As a festive season offer, IDBI Bank has decided to offer home loan and auto loans at base rate (currently 10.25%). IDBI Bank has also decided to waive processing fees for both home loans and auto loans during this period. All new borrowers can avail this facility from October 9, 2013. On 27th August 2014