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

UNIVERSITY OF MUMBAI

NAGINDAS KHANDWALA COLLEGE

ARTS & MANAGEMENT STUDY (WEST)

MUMBAI-4000064

PROJECT REPORT ON

“COMPARATIVE STUDY OF FUND BASE

AND FEE BASE PROFITABILITY OF BANK”

IN THE PARTIAL FULFILLMENT OF

T.Y.B.COM (BANKING AND INSURANCE)

SEMESTER V

(2014-2015)

SUBMITTED BY

MISS MARU SHEETAL N.

UNDER THE GUIDANCE OF

MR. G. H. RAO

“Comparative study of fund base and fee base profitability of bank”

ACKNOWLEDGEMENT

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.


INDEX

SR. NO. TOPIC PAGE

NO.

1. Executive summary

2. Research methodology

3. Introduction

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

10. Importance

11. Objectives

12. Scope

13. Strategies for fund base and fee base services

14. Factors affecting profitability of bank

15. Process

16. Fund based products flow

17. Fee based product flow

18. Case study of services of IDBI bank

19. Articles

20. Primary research

21. Suggestion for research

22. Finding

23. Conclusion

24. Bibliography


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 bank’s profit and complete my project and

information of product are from books, reference books, news paper, also little bit from internet.

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

Primary survey Secondary survey


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 don’t 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 term bank charge covers all charges and fees made by a bank to 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 BASE 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

FEE BASE ACTIVITIES


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

DISTINGUISH BETWEEN FUND BASES AND FEE BASE SERVICES

FUND BASE SERVICE FEE BASE SERVICE

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 high 6)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.

VARIOUS TYPES OF FUND BASE SERVICES

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.

TYPES OF FUND BASED INCOME

INCOME FROM LENDING OF MONEY

Generally lending of money refers with disposing of the money or property with

The 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 bank’s leverage position to

pump more money into the economy.


MUTUAL FUNDS

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.

STRUCTURE OF MUTUAL FUND:

Trust (mutual fund company)

Trustee

UNDERWRITING OF SHARES, DEBENTURE, BOND

Sponsor

Investor

Fund managerAsset liability management


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

CONTINGENT LIABILITY

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 daughter’s 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 its

Customers/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.

REGISTERED OWNER

THAT IS DEPOSITORY

DEPOSITORY

PARTICIPANTS THAT IS

AGENT AND BROCKER

BENEFICIAL OWNER

THAT IS INVESTORS


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

Cash

Raw Material

Stock -In-

Process

finished Goods

Sundry Debtors


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.

Buyer’s Credit / Supplier’s 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

VARIOUS TYPES OF FEE BASE SERVICES


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.

TYPES OF FEE BASE INCOME


REMITTANCE OF BUSINESS

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'.

TRAVELER’S 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

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 buyer’s 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.

BANK GUARANTEE

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.

EXPORTER GUARANTER

(BANK)

IMPORTER

SERVICE RELATED TO FOREIGN COMPANY

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


LETTER OF CREDIT

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 buyer’s 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:

Buyer/importer Seller/exporter

Issuing bank Paying 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

importer’s place and take money of the goods.

INSURANCE COMPANY

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.


PORTFOLIO MANAGEMENT

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.


ADVANTAGES OF FEE BASE AND FUND BASE SERVICES

TO THE

BANK

TO THE

CUSTO

MER

TO THE

BANK

TO THE

CUSTOM

ER

Infrastruct

ure

developme

nt

Create

propert

y with

minimu

m

installm

ent

Shorter

earning in the

form of

commission

Convenie

nt

Innovation Securit

y

One time

transaction

Transpare

nt services

Diversifica

tion of

losses

Conven

ient

Earning but

more focus

on customer

satisfaction

Easy to

understan

d by

pamphlet

also

Continuou Getting For retained Instant

SERVICES

FUND BASED FEE BASED


s income services of

better product

customer no need to

explain in detail

service

Earn for longer

period in the form

of interest

Reasonable No risk Easily 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) Interest

2) Commission

INTEREST:

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.

IMPORTANCE OF FUND BASE AND FEE BASE SERVICE

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.

OBJECTIVES OF FUND BASE AND FEE BASE SERVICES

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. .

SCOPE OF SERVICES

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

STRATEGIES FOR FUND BASE AND FEE BASE SERVICES

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.

FACTOR AFFECTING PROFITABILITY OF BANK

o 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

bank’s 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.

o 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.

o 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.

o 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.

o 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.

o 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.

PROCESS OF FUND FLOW


1) Go to the bank

2) Bank is very much interact and attach with you

3) Security collect from you

4) Loan amount given

5) With a fixation of date you have to pay interest and pay the money back to the bank.

With a fixation of

date

Go to the bank

Bank is very much interact and attach with

you

Security collect

from you

Loan amount given

Customer required

immediate cash

Discount a bill with a

bank

Deduct charges and give amount

to client

On due date bank collect from another person with

whom customer has to recover

the money


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.

CASE STUDY

INNOVATIVE FEE BASE AND FUND BASE PRODUCT OF IDBI BANK

IDBI Bank Limited is today one of India’s 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.

Functions

The 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 individual’s.

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 bank’s 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.

INNOVATIVE RECENT PRODUCT OF IDBI

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 applicant‘s 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

PRIMARY SURVEY OF IDBI AND CUSTOMER

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

10% people

never go

majorityof

they like icici bank

25% people like


35% of person earning high then the profession

Example: 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

10%take for

presonal use

majority they take loan for purchasing

house

35% taken loan for save tax


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

10% invest in shares

some of they are not aware about mutual fund

75% invest in

fixed deposit


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

25% says that capital appretiation only in share

market

65% person says that

return fixed in bank

now-a-days person pay

premium for protecting

life of family member.


(d) Vehicle loan

As per the today’s 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

10% of Education

loan is taken by students

2.5% of marriage loan is taken

35% of housing

loan is taken by salaried

people

6% of people taken

a vehical loan for

their comfort


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 better

Service 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.

RECENT NEWS


Big blue is going big brother, providing technology to India’s INDUSIND bank which

tracks customer’s 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: “IBM’s 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.

FINDING


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.

CONCLUSION


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.


BIBLIOGRAPHY

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:


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Vijay Mallya:

CHENNAI: IDBI Bank has started the process of declaring Kingfisher Airlines a "wilful

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has lent money to the beleaguered airline. Kingfisher is the country's top loan defaulter with

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Other banks like SBI (the lead bank for the Kingfisher loan) and Punjab National Bank are

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"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

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fee base product

fee base services

advantages of fund base

fund base means service

product bank

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customer bank charges

case study of idbi bank