Income 4 banking

Income source for bank Sagar's
The
income of scheduled commercial banks is broadly classifiable into
interest and non-interest income. The interest earned on loans and
advances, besides income from investments are interest income.
Non-interest income comprises fees, income from trading, and
foreign exchange operations. It also includes miscellaneous
income.
In the current soft interest regime, growth of bank income has
witnessed a slowdown. In 2003-04, rate of growth of income of
scheduled commercial banks was 6.6 per cent, compared to 14 per
cent, the previous year. The total income in absolute terms
increased from Rs 1,72,345.02 crore in 2002-03 to Rs 1,83,767.24
crore in 2003-04. Interest accounts for 78 per cent of the income of
scheduled commercial banks. Under this head, income from loans
and advances grew, in the same period, from Rs 68,570.10 crore
to Rs 70,050.92 crore — a 2.33 per cent.
Meanwhile, income from investments increased
The changing constitution of banks' income is the result of sharp
variation in their asset pattern. Published data reveal that between
1997 and 2003, investments recorded a compounded annual
growth rate of 20.7 per cent, while interest-earning advances
increased only at a 18 per cent.
Over the years, investment of scheduled commercial banks
in government securities has increased massively. It went up from
Rs 2,30,and 687 crore in 1999 to Rs 5,02,498 crore in 2003; the
percentage of investment in government securities to total
investments increased from 69 per cent to 76 per cent.
The Reserve Bank of India has conceded in the report on
Trend and Progress of Banking in India, 2002-03 that "the fall in the
interest income has been to a large extent compensated by the rise
in income from investments".
The writing on the wall is clear: Banks prefer to invest money
in government securities than undertake lending per se. Another
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issue to be examined is the composition of the non-interest
income.
Fee-income, trading income from sale and purchase of
securities, fore-income and miscellaneous income account for
roughly 30 per cent, 49 per cent, 9 per cent and 12 per cent
respectively. Income from fees and commissions, which was 70-90
per cent of non-interest income in 1991-92 declined to 25-30 per
cent during 2003-04.
Data show that the fee-based income of scheduled commercial
banks increased from Rs 10,594.54 crore in 2002-03 to Rs
11,825.01 crore in 2003-04, that is, by 11.6 per cent.
But trading income went up
But trading income went up from Rs 13,211crore to Rs19,
532 crore — 48 per cent — during the same period. Analysts say
that by keeping large chunk of their resources in government
securities, banks have indirectly and silently become a conduit in
raising public debt.
They also warn that "reckless" investment in government
securities can result in complacency among banks because it is a
risk-free operation and involves no appraisal or supervision after
investment (post-credit supervision), as in the case of advances.
In the long run, they add, this might result in erosion of
appraising ability and supervising acumen in banks.
Prima facie, this view may sound a little far-fetched;
nevertheless, the warning needs to be heeded to and the decline in
the growth rate of fee-based income arrested on a priority basis.
Simultaneously, strategies to boost fee-based income should
be urgently devised. More so, because of the near perfect
competition in the interest rate scenario, which makes it difficult for
banks to earn more by charging higher interest on loans.
Interest on government securities has also come down over
the years. The correlation between fee-based income and quality
**2**

of customer service is quite high. Unmistakably, banks have to
concentrate more on providing better, faster and more efficient
customer service. Any service provided by banks has to earn the
satisfaction of the customer — the ultimate judge of quality.
Nevertheless, the close relationship between service and
customer is more relevant in the case of services, which reach the
larger cross-section of public. In this context, fee-based income
assumes greater significance because the clientele is broader.
Better and faster customer service will entail more cost to
banks and, under the current dispensation, their capacity to absorb
additional cost is quite limited. It would, therefore, be in the fitness
of things to permit banks to charge higher rates for better and
faster service.
Various strategies can be thought of to boost fee-based
income. Perhaps, the ideal situation will be one where for every
service in a bank there can be two different channels; the faster
and guaranteed one, which can be at a higher cost, and the
ordinary one, where no extra cost is involved.
Guarantee is important because many instances have to
come to light when people were made to run from pillar to post
when money was sent but did not reach the destination. Banks
could consider taking instructions on telephone or e-mail for issue
of drafts and have them delivered to the customer.
People who want such quality services will be ready to pay more.
If this view is accepted, it may not be necessary for the Indian
Banks Association to prescribe service charges. Competition and
quality of service will take care of the pricing mechanism. It may
not be possible for banks to provide two service channels
everywhere, but a beginning can be made.
Bank marketing has to go beyond loans and deposits. Banks
should seriously consider launching aggressive marketing of
specially priced services. For example, people who purchase a
large number of drafts in a month and frequently make remittances
can be given concessions. This approach can be considered for
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other channels of services also. There is, however, a rider to
focusing on non-interest income.
The RBI has quoted international studies that caution against
over-dependence on non-interest income because of its volatility.
It would be reasonable to assume that the risk of volatility
applies more to trading and treasury income. This is because
trading income derived from buying and selling of securities and
treasury income earned mainly from lending in the call money
market, is subject to unpredictable variations.
On the other hand, as the economy grows, the demand for
fee-based services of banks services is certain to go up. Hence,
initiating well-thought-out steps to enhance fee-based income may
not be fraught with risk.
(The author is a former chief general manager, Reserve Bank of
India.)
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A) Advancing of Loans
The commercial banks provide loans and advances in various
forms. They are given below.
1. Overdraft: This facility is given to holders of current accounts
only. This is an arrangement with the bankers thereby the
customer is allowed to draw money over and above the
balance in his/ her account. It is a short-term temporary fund
facility from bank and the bank will charge interest over the
amount overdrawn. This facility is generally available to
business firms and companies.
2. Cash Credit : Cash credit is a form of working capital credit
given to the business firms. Under this arrangement, the
customer opens an account and the sanctioned amount is
credited with the account. The customer can operate that
account within the sanctioned limit as and when required. It is
made against security of goods, personal security etc. One
advantage under his method is that bank charges interested
only on the amount utilized and not on total amount
sanctioned and credited to the account. Reserve Bank
discourages this type of facility to business firms as it imposes
an uncertainty on money supply hence this method of lending
is slowly phased out from banks and replaced by loan
accounts
3. Discounting of Bills : Discounting of bills may be another
form of bank credit. The bank may purchase inland and
foreign bills before these are due for payment by the drawee
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debtors, at discounted values,i.e., values a little lower than
the face values. The banker’s discount is generally the
interest on the full amount for the unexpired period of the bill.
The banks reserve the right of debiting the accounts of the
customers in case of the bills is ultimately not paid,i.e.,
dishonored.
4. Loans and Advances : It includes both demand and term
loans, direct loans and advances given to all type of
customers mainly to businessmen and investors against
personal security or goods of movable or immovable in
nature. The loan amount is paid in cash or by credit to
customer account, which the customer can draw at any time.
The interest is charged for the full amount whether he
withdraws the money from his account or not. Short-term
loans are granted to meet the working capital requirements
whereas long-term loans are granted to meet capital
expenditure. Previously interest on loan was also regulated by
RBI. Currently, banks can determine the rate themselves.
Each bank is, however required to fix a minimum rate known
as Prime Lending Rate (PLR).
5. Housing Finance: Nowadays commercial banks are
competing among themselves in providing housing finance
facilities their customers. It is mainly to increase the housing
facilities in the country. State Bank of India, Indian Bank,
Canara Bank, Punjab National Bank, has formed housing
subsidiaries to provide housing finance. The other banks are
also providing housing finances to the public. Government of
India also encourages banks to provide adequate housing
finance. Borrowers of housing finance get tax exemption
benefits on interest paid. Further housing finance unto Rs.5
lakh is treated as priority sector advances for banks. The limit
has been raised to Rs. 10 lakhs per borrower in cities.
6. Educational Loan Scheme: The Reserve Bank of India, from
August, 1999 introduced a new Educational Loan Scheme for
students of full time graduate/ post-graduate professional
courses in private professional’s colleges. Under the scheme
all public sector banks have been directed to provide
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educational loan unto Rs. 15,000 for free seat and Rs. 50,000
for payment seat student at interest not more than 12 per cent
per annum. This loan is on clean basis i.e., without calling for
security. This loan is available only for students whose annual
family income does not exceed Rs. 1, 00,000. The loan has to
be repaid together with interest with interest within five years
from the date of completion of the course. Studies in respect
of the following subjects/ areas are covered under the
scheme.
a) Medical and dental course.
b) Engineering course.
c) Chemical Technology.
d) Management courses like MBA.
e) Law studies.
f) Computer Science and Applications.
This apart, some of the banks have other educational loan
schemes against security etc., one can check up the
details with the banks.
7. Loans against Shares/ Securities: Commercial banks
provide loans against the security of shares/ debentures of
reputed companies. Loans are usually given only unto 50%
value (Market Value) of the shares subject to a maximum
amount permissible as per RBI directives. Presently one can
obtain a loan unto Rs. 10 lakhs against the physical shares
and unto Rs. 20 lakhs against dematerialized shares.
8. Loans Against Savings Certificates :Banks are also
providing loans unto certain value of savings certificates like
National Savings Certificate, Fixed deposit receipt Indira
Vikas Patra , etc. the loan may be obtained for personal or
business purposes
9. consumer loans and advances: one of the important areas
for bank financing in recent years is towards purchase of
consumers durables like TV sets, Washing Machines, Micro
Oven, etc. banks also provide liberal Car finance these days
banks are competing with one another to lend money for
these purposes as default of payment is not high in these
areas as the borrowers are usually salaried persons having
regular income. Further, bank’s interest rate is also higher.
**7**

Hence, banks improve their profit through such profitable
loans.
10.Securitization of Loans: Banks are recently trying to
securities a part of their part of loan portfolio and sell it to
another investor. Under this method, banks will convert their
business loan into a security or a document and sell it to
some Investment or Fund Manager for cash to enhance their
liquidity position. It is a process of transferring credit risk from
the banker to the buyer of securitized loans. It involves a cost
to the banker but it helps the bank to ensure proper recovery
of loan. Accordingly, securitization is the process of changing
an illiquid asset into a liquid asset.
11.Others: Commercial banks provide other types of advances
such as venture capital advances, jewel loans, etc.
**8**

A) Agency Function:-
Agency Functions include the following:
1) Collection of cheques, dividends, Interest: As an agent the
bank collect cheques, drafts, Promissory Notes, interest, dividend
etc. on behalf of its customers and credit the amount to their
accounts. Customer may furnish their bank details to corporate
where investment is made in shares, debentures etc. As and when
dividend, interest, is due the companies directly send the
warrant/cheques to the banks for credit to customer account.
2) Payment of rent, insurance premiums: The banks make the
payment such as a rent, insurance premium, subscriptions, on
standing instruction until further notice. Till the order is revoked,
the bank will continue to make such payment regularly by debiting
customer accounts.
3) Dealing in foreign Exchange: As an agent the commercial
banks purchase and sell foreign exchange as well for customer as
per RBI Exchange Control Regulation.
4) Purchase and sale of securities: Commercial Banks
undertakes the purchase and sale of different securities such as a
share, debenture, bonds etc. on behalf of their customer. They run
separate 'portfolio Management Scheme for their big customer.
5) Act as a trustee, executor, attorney etc: The Banks act as
executors of will, trustee and attorney. It is safe to appoint a bank
as a trustee than to appoint an individual. Acting as an attorney of
their customers, they receive payment and sign transfer deeds of
the properties of their customers.
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6) Act as a correspondent: The commercial banks acts as a
correspondent of their customer small banks even get travel
tickets, book vehicles, receive letter etc. on behalf of customers.
7) Preparation of Income Tax returns: They prepare income tax
return and provide advice on tax matter for their customer. For this
purpose, they employ tax experts and make their service available
to their customers.
B) General Utility Service:-
The General Utility Service includes the following:
1) Safety Locker Facility: Safekeeping old important
document, valuable like jeweler is one o f the oldest service
provided by commercial banks. 'Locker" is small receptacles
which are fitted in steel racks and kept inside strong room
called as Vaults. These lockers are available half yearly or
annual rental basis. The banks merely provide lockers and
the keys but the valuable are always under the control of its
users. Any customer cannot have access to vault. Only
customer of safety locker after entering into a register his
named account number and time can enter into the vault.
Because the vaults is holding important valuables of
customers in lockers, it is also called known as a 'Strong
Room'
2) Payment Mechanism or Money Transfer: Transfer of
funds is one of the important functioned performed by
commercial banks. Cheques and credit cards are two
important payment mechanisms through the banks, Despite
an increase in financial transaction, banks are managing the
transfer of the funds process very efficiently.Cheques are
also cleared through the banking system. Correspondent
banking is another method of transferring fund over long
distance, usually from one country to another.
3) Travelers Cheques: Travellers cheques are used by
domestic travelers as well as by internationals traveler.
However the use of traveler cheques is more common by
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internationals traveler because of their safety and
convenience. These can be also termed as a modified
formed of traveler letter of credit. A bank is issuing traveler
cheques usually have banking arrangement with many of the
foreign banks abroad, known as correspondent banks. The
purchase of traveler cheques cans encase the cheques from
the all-overseas bank with whom the issuing bank has such
as arrangement. Thus traveler cheques are not drawn on
specific abroad. The cheques are issued in foreign currency
and in convenient denominations of ten, twenty, fifty, one
hundred dollar etc. The signature of the buyer/traveler is
written on the face of cheques at the time of their purchase.
The cheques also provide blank space for the signature of
the traveler to be signed at the time of encashment of each
cheque. A traveler has to sign in the blank space at the time
of drawing money and in the presence of the paying bankers.
The paying banker will pay the money only when the
signature of the traveler tallies with the signature already
available on the cheques.
A traveler should never sign the cheques except in the
presence of the paying banker and only when the traveler
desire to encash the cheques. Otherwise it may be misused.
Hotel, restaurants, shopping mall, and airline companies also
accept the cheques for respectable persons. Encashment of
traveler cheques abroad is tantamount to a foreign exchange
transaction as it involves conversion of domestic currency
into a foreign currency.
When a traveler cheques is lost and stolen, the buyer of
the cheques has to given a notice to the issuing banks so
that stop order can be issued against such lost/stolen
cheques to the banks where they are permitted to be
encashed.It is also difficult to the finder of the cheques to
drawn cash against it since the encasher has to sign the
cheques in the presence of the paying banker. Unused
traveler cheques can be surrender to the issuing banks and
balance of cash obtained.
4) Circular Notes or Circular Letter of credit: Under the circular
letter of credit the Customer/traveler negotiates the drafts
with any of the various with any various branches to which
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they are addressed. Thus the traveler can be obtained fund
from the many of branches of bank instead only from a
particular branch. Circular letter of credit is thereof a more
useful method for obtaining fund while traveling to many
countries.
5) Letter of Credit: Letter of credit is payment document
provided by the buyer banker in favor of seller. This
document guaranteed payment to the seller upon production
of document mentioned in the letter of Credit evidence
dispatch of goods to the buyer. The letter of credit is an
assurance of payment upon fulfilling
6) Acting as Referee: The bank act as a referee and supply
information about the business transaction and financial
standing of their customer on enquiries made by third parties.
This is done on the acceptance of the customer and helps to
increase the business activity in general.
7) Provide Trade Information: The commercial banks collect
information on the business and financial conditions etc., and
it available to their customer to help plan their strategy.
Trade information service is very useful for those customers
going for cross-border business. It will help trader to know
the exact business conditions payment rules and buyer
financial status in other countries.
8) ATM Facilities: The banks today have ATM facilities under
this system the customer can withdraw their money easily
and quickly and 24 hour a day. This is also known as Any
Time Money. Customer under this system can withdrawals
fund i.e. currency notes with a help of certain magnetic card
issued by the banks and similarly deposit cash/cheques for
credit to account.
9) Credit cards Bank has introduced credit card system:
Credit card unable a customer to purchase goods and
services from a certain specific retail and service
establishment up to a limit without making immediate
**12**

payment. In other words purchase ca be made credit basis
on the strength of the credit cards. The establishment likes
hotel, shops, Airline companies, Railways etc. that sell the
goods and services on credit forward a monthly or fortnightly
statement to the banks. The amount is to be paid to this
establishment by the banks the banks subsequently collect
dues from the customer by debit to their account.
10) Gift Cheques: The commercial banks offer Gift
Cheques facilities to the general public these cheques are
received a wider acceptance in India. Under this system by
paying equivalent amount one can buy gift cheques for
presentation on occasion like Wedding Birthday.
11) Accepting the Bills: On behalf of the customer the
bank accept bills drawn by third parties on its customer. This
resembled the letter of credit. While banks accept bills they
provide better securities for payment to seller o goods or
drawer of bills.
12) Merchant Banking: The commercial Banks provide
valuable service through their merchant banking divisions or
through their subsidiaries to the trader. This is the function of
underwriting of securities. They underwrite a portioned of
public issue of share, debenture and bonds pf Joint stock
Company. Such underwriting ensures the expected
minimum subscription and also conveys to the investing
public about the quality of the company issuing the securities.
Currently, this type of service can be provided only by
separate subsidiaries known as a merchant banker as per
SEBI regulations.
13) Advice on Financial Matters: The commercial banks
also give advice to their customer on financial matter
particularly on investment decisions such as expansion
diversification new ventures rising of funds etc.
14) Factoring Service: Today the commercial bank
provide factoring service to their customer. It is very much
helpful in the development of trade and industry as
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immediate cash flow and administration of debtors account
are taken care of by factor. This service is again provided
only by separate subsidiaries as per RBI regulations.
C) Remittance facilities:
Banks are financial intermediaries. Apart from mobilizing deposits
from savers and lending them to needy borrowers, banks help the
savers and borrowers to transfer funds from one place to another
in a secured way without physically moving the funds. Usually the
following methods are adopted by banks for transfer of funds.
1. Mail transfer
2. Telegraphic transfer
3. Demand drafts
4. Pay orders
5. Electronic funds transfer
Demand drafts:
Drafts are basically bill of exchange. As in the case of bill of
exchange, a draft is drawn by one party on another party and made
payable to the drawer himself or some on else. DD are drafts
drawn by a bank on its own branches at different places and made
payable to third parties or purchaser of the draft. Eg.Supposing you
as a student desires to remit certain fees for taking up a
competitive examination conducted by the service board, usually
the board asks the all the candidates to remit the examination fees
by demand drafts issued by banks. In such a case, you may pay
the requisite sum to a bank along with the prescribed challan
detailing the name of the payee, purchaser or remitter, amount,
place, where it should be remitted, etc. the bank on receipt of the
amount will issue a draft which has to be sent by the candidates to
the board along with the application. For obtaining money or credit
to the account, the payee (in the present case the board) has top
present the draft to the paying bank. Since these drafts are payable
immediately on presentation by the payee, they are called demand
drafts. The draft can be crossed “account payee” to restrict its
transfer.
**14**

DD can be defined as cheques issued by a bank on its own
branches or on other banks under corresponding arrangement.
Pay order:
Pay orders are drafts issued by an office/ branch of a bank on
itself. In other words the issuing branch/ office and paying branch/
office are on and the same. Pay orders are issued by bank only
against receipt of funds first. Suppose a candidate desires to remit
certain examination/ admission fees to a particular educational
authority. In case both the candidate and the educational authority
happen to maintain accounts with the same branch, then the
candidate may remit the fees by obtaining a pay order instead of a
demand draft. If the fees can be paid to any branches of the bank,
then a demand draft can be obtained draft is that where as a
demand draft is issued by a bank on any of its branches, a pay
order is issued on it self. In both the case the bank will issue the
instruments only after receipt of funds first.
Electronic funds transfer:
Normally remittance or transfer of funds between banks gets
originated by a paper instrument. For e.g. under mail transfer, the
remitter has fill up necessary challan and give it to the bank along
with a cheque or cash for transfer of funds. Under electronic funds
transfer the transaction of funds transfer is initiated through an
electronic equipment and system or telephone or computer
devices, etc.
In India, the RBI has introduce EFT scheme to assist banks in
providing their customers fund transfer facility from one account to
another either with the same bank or with different banks.
Under this system a customer desiring to remit certain amount to
another place fills in the prescribed EFT application form together
with the details like, beneficiary’s name, bank account number,
name of the bank and branch, location of the branch, etc. and
hands over the form and a cheque drawn on his account. The
remitting bank through one of its designated branches for this
purpose transmits the details of transfer to the RBI. The reserve
bank at the transaction originating centers consolidates all such
transfer advice and transmits information of transfer to its various
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centers for advising the concerned banks for providing the requisite
credit to the beneficiaries. Thus, it acts as an intermediary between
the remitting bank and receiving bank and affects the transfer. The
RBI allows up to Rs.2.00 crore per transaction to be transfer in this
way. Further it charges Rs.5.00 per transaction to banks. The
banks will charge separately fees on their customers for availing of
this facility. However, fees charged by banks for transfer of fund
under EFT system will be smaller as compared to remittance
facilities under MT, TT, and DD.
This system of funds transfer is available with all the public sector
banks and many of the private sector and state co-operative banks.
Fund transfer under EFT is possible from any branch-to-branch
with the same bank or with other banks.
D) Other Fee based Services:
These services can be identified as:
1. Issue of Guarantees
2. Locker Facilities
3. Issue of Credit Cards
4. Portfolio Management Services ( PMS )
5. Tax Advice
6. Investment Guidance
7. Acting as Agents for Selling Financial Products
8. Sale of Insurance Products
9. Project consultancy
10.( Demat ) Dematerialized Accounts
11.Issue of Letter of Credits
12.Custodial Services
13.Loans from Overseas Market for customers
14.Other Fee Based Services
1. Issue of Guarantees:
Issue of guarantees on behalf of customers is one of the
important revenue earning services provided by banks. In the
course of commercial business the customer may be required to
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provide with a bank guarantee under different circumstances.
Guarantees manly serve the purpose of assuring that the work
awarded to person will be performed / executed in terms of a
contract. If not, the guarantor will step into pay any compensation
stipulated under the contract. This service brings in sizeable
income to the banks. The guarantees as well as the customer-
banker relationship.
2. Locker Facilities:
Bankers make available Safety Locker Facilities to
customers for keeping their valuables. In return, the bank Levis
half-yearly or annually charges which may depend upon the size of
the lockers. The lockers may be used to hold valuables like
ornaments, jewellery, Share / Bond Certificates and other important
documents. These items are held only at the risk of the customers.
Banks will not be held liable if the customers misuse the locker
facility.
3. Issue of Credit Cards:
Banks issue their own as well as Cards of other reputed
agencies under arrangement to customer. Banks collect charges
for this facility from card holders depending upon the type of card,
value limit, etc. The fess may be charged on annual basis with
certain specified one time entry fees also.
4. PMS Services:
Under Portfolio Management Services, the banks accept
large sums of money from wealthy customers for investment
purposes with permission of Reserve Bank of India. The guide-
lines governing PMS services are issued by Reserve Bank. Banks
are expected to maintain separate account for this purpose and
they are not permitted mix up these funds with their own funds. The
cannot guarantee fixed income to customers under this scheme.
Banks are basically expected to utilize the funds for investment and
income generated out of such activity will be credited to customers
account. Banks, are however, and permitted to levy fess / charges
for such services. Funds accepted under the Schemes should
normally be that of the customers and not that of the bank.
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5. Tax Advice:
Most of the banks have their own departments. Although
these departments normally engage themselves to protect the
interest of the institution from legal disputes, the departments also
have experts to provide legal counseling to customers. Such
advice may pertain to personal taxation, capital gain tax and other
tax issues.
6. Investment Guidance:
These days a number of financial saving products are
available for investors. Some of them are money market
instruments like, Treasury Bills, Commercial Paper, Certificate of
Deposits, etc. Some of them are Capital Market instruments like
Shares, Bonds, and Government Securities with long term horizon.
Banks offer their expertise to customers in choosing the right type
of investment depending upon the amount, duration, risk appetite,
expected return, etc., of customers. Banks charge fees for
providing such services, this type of service is different from that of
PMS services mentioned above. Under PMS, the banks accept
large sum of money from a customer and utilize the funds for
various investment in consulting with the customer and at his own
risk. However, banks will provide investment advice and guidance
for any customers and actual investment decision and employment
of funds and maintenance of accounts there to will be done by the
customers.
7. Agents for selling financial products:
Under arrangement with other agencies engaged in
financial services, banks sell their products like Credit / Debit
Cards, ATM Services etc., to customers. Although the bank may
obtain a share of fees from other agencies, banks may also levy
certain charges for these additional facilities.
**18**

8. Sale of Insurance Products:
Recently, banks in India are permitted to sell insurance
products to their customers under arrangement with Insurance
Companies. These products may be life insurance policies,
accident insurance policies, Pension Policies and other general
insurance policies. Banks which have wide network of branches
are expected to earn sizeable income / fees from these additional
facilities.
9. Project Consultancy Services:
Many first-time entrepreneurs need expert advice for
crystallizing their investment ideas into workable projects.
Unplanned schemes may run into cost escalation and delayed
execution. Persons intending to put up small scale industries
normally overlook many aspects of the project requirements like
environment clearance, legal issues, etc. Banks will be in a better
position to provide all round advice in such cases for certain fees.
10. Demate account:
Under SEBI guide lines, the issue and transfer of security of
many corporate are now required to be transact in demate forms
.under demate, physical securities are converted in to electronic
form and held in account with bank and other institutions permitted
to maintain this type of accounts bank may usually levy charges for
marinating such account although such account in many cases
such services may be provided free of charges.
11. Letter of credit (LOC):
Bank issue letter of credit on behalf of t6heir customer
particularly in international trade. The issue of letter of credit may
be a non fund based services if bank are not providing their own
funds to honors the bills drawn under letter of credit. Bank charges
fees for issue of letter of credit which may depend upon the value
of credit, tenor of credit and customer relationship.
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12.Custodial services:
Apart from offering safety locker facility ,bank also provide
custodial services for holding valuable financial instruments,
important legal deeds and deed and documents of customer
against payment of periodic fees. The bank will be earning certain
fees from the company for this purpose.
13.Arraigning foreign currency loans from overseas market.
Presently government permits Indian corporate to raise
foreign currency loans from overseas market under certain
conditions .since they may not be well conversant with overseas
market and the risk associated with it, the corporate take the
assistance of bank for raising the loan at minimum cost .the bank
collects fees like management fees,etc for such services .they may
also arrange loan syndication against specifics fees .charge in
such case will relate to the total fund raised ,the duration of loan
management of loan account and other services expected of the
bank under arrangement with the customers.
14. Other fee based services:
Bank tends to innovate new type of services to suit the
personal requirement of various customers as well as that of
corporate-client. As such these services will be different from bank
to bank .in the establish overseas market, bank may also provide
the following specialized services to corporate clients:
(1)Factoring service,
(2)Forfating services,
(3)Bank acceptances ,etc
Factors are basically institutions financing the receivables
corporate on recourse or non-recourse basis.in other word the
account receivable directly from debtors. It is beneficial to the
corporate since they are able to realize funds on the bills
immediately from the factor. The factor deducts commission or
**20**

other charges plus inters components from the value of bill before
making payments to customer.
Forfating is another method of purchasing receivable of
purchasing the receivable of customer on non-recourses basis.
However forfating is more common in international trade while
factoring is common practice adopted in domestic trade. Since
forfating is always done under non-recourses basis, the discounted
value is higher as compared to the discount under factoring.
A banker acceptances refer to bills which have been accepted by
bank .this acceptance enhances the safety aspect of the bill and
becomes a good instrument for value to discount house. Further
bankers acceptance strike a better realization with lower discount.
**21**

SCHEDULED TO BALANCE SHEET AND PROFIT AND LOSS ACOUNT
SCHEDULED NO 6.CASH AND BALANCE WITH RBI
this include the cash in foreign currency and in rupee
-cash in hand
-balance with RBI
SCHEDULED N0 8. INVESTMENT
It include the following
I. investment in India in
>government securities
>approved securities
>share
>debenture & bonds
>subsidiary & joint venture
>other
II investment outside India
>government securities
>other investment
SECTION 9.ADVANCES
it include the following
A.(I)Bills purchased and discount
(ii)cash credit ,overdrafts and loans repayable on demand
(iii)term loan
B.(I)secured by tangible assets
(ii) cover by bank govt.gurantees
(iii)unsecured
C.1.advances in India
>priority sector
>public sector
>bank
>other
2.Advances outside India
>dues from bank
>dues from other
(a)bill purchased and discounted
(b) syndicated loan
(c ) other
**22**

SCHEDULED 13. INTEREST EARNED
1.interesdiscount on advances
2.income on investment
3.interest on balance with reserve bank of India and other
inter bank funds
4. other
SCHEDULED NO 14. OTHER INCOME
1. commission exchange & brokreage
2. profit on sale of investment
3. profit on revaluation of investment
4. profit on sale of landbuilding and other assets
5. profit on exchange trancation
6. miscellaneous income
**23**

INSURANCE TO FORM 13RD
OF BANKS FEE-BASED INCOME.
Insurance activity is expected to form one third part of bank’s total
strong fee-based in near feature, revealed
GC Chaturvedi-joint secretary (banking & insurance),ministry of
finance.
The “Emerging Bancassurance” that bancassurance is one of the
potential growth areas. life insurance industry has growth at a phenomenal
growth rate of 46% this year even the life insurance corporation has growth
around 35%.the bancassurance contributes just 2%, however within span of
next five year it is expected to grow around 13% in life insurance and 5% in
non life insurance business from banassurance the bank as well as
insurance players to focus on the future growth opportunities and find out
the challenge. The insurance player should consider public sector bank
(PSBs) for distributing their product.
INSURANCE PENETRATION FORMS 2.9% OF GDP
Source-The Financial Express-18th
January, 2006
**24**

RBI in talks with banks to boost volumes in ADVANCE PAYMENT
SYSTEM products
In a bid to increase the volume of business in advances payment
system product the reserve bank of India has initiate discuss with the
bankers. the RBI has chalked out the step which would help the bank to
push the volume in advances payment system. The RBI found there is a lot
of potential in this area. the bank to push the business volumes in this
systems .they should try to create innovative delivery channels with suitable
product .the products could available through ATM’s, Websites, bank
branches and other routes. the bank are suggested to target the
corporate ,small and medium enterprises sector, small scale units and
individual with suitable product through appropriate delivery channels. The
RBI is planning to extend Real Time Gross Settlement (RTGS)mechanisms
to commodities and stock exchange and government securities.
January, 2006
**25**

USE OF INTERNET IN BANKING COMPELLING
An internet transaction costs ICICI bank only 0.45 paisa as compared
to 145-150 Rs if a customer visits bank branches. “That is how
compelling is the need for increase the usage of the internet as a medium
for banking transaction”-
ICICI BANK GENERAL MANAGER (RETAIL ASSETS PRODUCT
GROUP) - MAHIVANAM B said.
“About 2 year ago, 94% of transactions used to be via our branches.
At present, it is down to 30% after the introduction of ATM’s. They can
achieve the same cost reduction with mobile devices and with the internet,”-
but this can only be achieved with true broadband connectivity and personal
computer (PC) and mobile devices are able to penetrate to each consumer.
“THE INTERNET HAS ALREADY BECOME AN INEVITABLE PART OF
THE BANKING INDUSTRY”
January, 2006
**26**

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