SBI Fee income: Pitfalls, Challenges

and Opportunities

Sirisha Kumari Akella

VP (Statistician)
SBSC

Acknowledgements

I express my gratitude to Shri. Mohan. S

General Manager & Principal State Bank Staf
College, for giving me the oppurtutinity to doing
the project.
I express my gratitude to Shri.BK. Toppo, DGM
(PD&A), State Bank Staf College, for providing
me the support and guidance to complete the
project.
I express my gratitude to Shri. Shakeel AGM,
PPR Dept., for providing me data to complete the
project.

Sirisha Kumari Akella

VP (Statistician)

Dated: 04.03.2015
2

Contents
S.No
1

Topic
Executive summary

Page
4

Introduction

Objective of the study

Methodology

Trend Analysis

Correlation Analysis

Regression Analysis

11

SWOT Analysis

12

Strategies

15

10

Conclusion

16

Executive Summary
In banking business nationalize and private banks earn
huge income from these sources but not all schedule
banks offer so many services and schedule banks earn
less "Non-interest income as compare to nationalize and
private banks in India.
Objective of the Study:
Strategies to boost the Fee income of the Bank.
Methodology:
1. Trend Analysis for comparisons of peer group Fee
income.
2. Correlation

analysis

for

relation

between

performance indicator, macro economic parameters

and Fee Income.
3. Multiple Regression Model for Fee income, how
impact fee income of the bank on macro economic
parameters

and

bank

performance

parameters.

These ratios are then used to construct a regression

model to establish the relationship of each variable
of

the

banks

income

using

Fee

income

the

analysis

for

dependent variable.
4. Finally,

carrying

out

the

SWOT

implementing the optimization of fee income.

Analysis &Results

 Relation between Fee income and ROA, Per capita

income is Strong positive correlation implies that if
ROA and Percapita income are increases then Fee
income is also increase.
These independent variables are perfectly related to
Fee income, Means that impact of these parameters
on Banks Fee income. So, we can predict Fee income
from this model using these independent variables. If
the economy grows, the demand for fee-based
services of banks services is certain to go up.
SWOT Analysis
Suggested Strategies for boost up Fee income a
Bank:
1. Improve collection of current fees.
2. Put a value on Customer relationships.
3. Improve Marketing on products and services.
Conclusion:
From the trend analysis other income to fee income ratio
is high for private banks as compare to PSU banks.
From the correlation analysis strong relation between fee
income and macro economic parameters, bank
performance indicator means that economic conditions
are impact on fee income.
From regression Analysis an R-square to 1.0 indicates
that we have accounted for all of the variability with the
variables specified in the model. So, Bank should make
standard monitor system and adopt new strategies on
regular basis.

SBI Fee income: Pitfalls, Challenges and

Opportunities

Introduction
In post reform period RBI has deregulated interest rate on
Loans and Advances and hence every bank is independent
to determine the interest rate on Loans and Advances.
Now RBI has deregulated interest rate on saving account
also, therefore almost all banks will increase interest rate
on saving account to increase deposits in their banks.
Therefore, banks offer low interest rate on Loans and
Advances to increase advances and on other hand
increase rate of interest rate on savings or other deposits
in bank account. To increase revenue, banks offer other
services to their customers or clients and from these other
services banks earn "NON-INTEREST

INCOME" (fees,

commission, charges, exchange fees etc.) Banks offer

various services to their customers at a cheaper rate. In
banking business, nationalized and private banks earn
6

sizeable income from these sources but not all scheduled

banks offer so many variety services and hence, they earn
less "Non-interest income as compared to nationalized
and private banks in India.
Following are the services offered by various banks
in India.
* ATM facilities* NEFT money transfer* Demand draft/ pay
orders* Signature verification* Demat account* Online bill/
Tax payments* Online ticket booking* Third party product*
Sale of insurance* Sale of mutual funds * Sale of gold
coins etc. Opening &confessing of LCs and grauntees.
Significance
Banks, the world over, are transcending their normal
business operations and diversifying their activities in
response to economic and financial sector reforms. The
Indian banking industry too has been seen steadily
shifting away from traditional sources of revenue like from
loan advances to non-traditional sources that generate fee
income, service charges, trading revenue, and other types
of noninterest income.
Objective of the Study:
Strategies to boost the Fee income of the Bank.
Business Goal:
Optimization of Fee income of the Bank by carrying out
the SWOT Analysis, best practices adopted by peer banks
in India and abroad.

Data & Methodology:

5. Trend Analysis for comparisons of peer group Fee
income.
6. Correlation

analysis

for

relation

between

performance indicator, macro economic parameters

and Fee Income.
7. Multiple Regression Model for Fee income, impact of
fee

income

parameters

of
and

the

bank

bank

on

macro

performance

economic

parameters.

These ratios are then used to construct a regression

model to establish the relationship of each variable
of a banks income using Fee income with dependent
variable.
8. Finally, carrying out SWOT analysis for implementing
the optimization of fee income.

Data:
Fee income, performance indicators and efficiency ratios
of banks are obtained from various bank sites. Macro
economic parameters are obtained from RBI site.
Limitations of the Study:
In this study we obtained only our bank data. We unable
to collect the peer group data due to other banks and
privative sector banks are reluctant to share their data
with us.
Analysis:

Trend Analysis: In statistics, trend analysis often refers

to techniques for extracting an underlying pattern of
behaviour in a time series which would otherwise be
partly or nearly completely hidden by noise. A simple
description of these techniques is trend estimation, which
can be undertaken within a formal regression analysis.

Trend for SBI and other peer group of Fee

income: Rs.in Crs

From the trend analysis for all the banks, fee income has
an increasing trend at a variable pace .Weak trend of
growth in the entire banks fee income in 2009 to 2010
period (recession period) turned around with positive
growth from 2011. SBI Fee income growth rate is
highest of all other banks growth.

Trend for SBI and other peer group of Fee

income to other income ratio:
9

From the trend Analysis for fee income to other income

ratio, it reveals that the Private Banks ratio is better than
that of PSU Banks.
Now we are going to observe any relation between SBI fee
income and banks ROA, Macro economic parameters like
GDP, Inflation and Per capita Income through correlation
analysis.

Correlation Analysis:
Correlation analysis is one of the most widely used
and reported statistical methods in summarizing research
data. It is useful to determine if any relationship exists
between two different variables. If so, how significant or
how strong is this association between the two variables.

10

A positive correlation coefficient indicates that an

increase in the first variable would correspond to an
increase in the second variable, thus implying a direct
relationship between the variables.
A Negative correlation coefficient indicates that an
increase

in

the

first

variable

would

correspond

to

decreases in the second variable, thus implying a direct

relationship between the variables.
Where correlation coefficients (in absolute value)
which are <=0.35 are generally considered to represent
low or weak correlations, 0.36 to 0.67 modest or moderate
correlations, and 0.68 to 1.0 strong or high correlations
with r coefficients >= 0.90 very high correlations.
Table 1:
Correlation between Fee income and
ROA,Percapita income, Inflation and GDP
RO Fee
Per
Inflati GD
A
income
capita
on
P
1.0
ROA
0
Fee
0.6
1.00
income
5
Per
0.5
0.86
1.00
capita
6
0.8
-0.90
-0.69
1.00
Inflation
8
1.0
0.1
-0.22
-0.64
-0.06
0
GDP
0

From the Table 1:

11

 Relation between Fee income/ ROA and Per capita

income is Strong positive correlation implies that if
ROA and Percapita income increase, then Fee income
is also increase.
Relation between Fee income and Inflation is Strong
negative

correlation

implying

that

if

Inflation

increases then Fee income is decreases.

Relation between Fee income and GDP is Low
negative

correlation

suggesting

that

if

GDP

increases, then Fee income decreases.

Next, we are going to fit multiple regression models for
Fee income and other independent variables. From the
model, we can predict a Fee income on the basis of
multiple independent variables (ROA, GDP, Inflation, Per
capita income). In this study, it is observed that these are
independent variables for Fee income model fit, it may
include some other independent variables also.
Regression Analysis:
In statistics, regression analysis is a statistical process for
estimating the relationships among variables. It includes many
techniques for modeling and analyzing several variables, when the
focus is on the relationship between a dependent variable and one or
more independent variables.

Model Fit

12

To identify the determinants of Fee income of the Bank

during 2004-2014 years, this study has chosen multiple
regression analysis. The period of study is 10 years
starting from 2004 till 2014. The regression model is as
follows:
Regression Model for Fee income:
Fee income = 0 + 1X1 + 2X2 + 3X3+ 4X4+ 5X5+ 6X6+

Whole Model for Fee income:
Fee income = 0 + 1 GDP+ 2 per capita income + 3
Banks ROA + 4 Inflation +
Table 2 : Model Summary:
Model Summary
Mod
el

R
1.0
1
0

R
Sqaur
e
1

Adjusted R
Square

Std.Error of the
Estimate
1

14.49584

Predictors: constant, Inflation, ROA, GDP and per capita income,

dependent variable is Fee income.

The coefficient R is 100%. This shows that all of the

independent variables collectively explain 100%
changes in Fee income. This is explained by cumulative
effect of the 4 independent Variables employed in this
study: ROA, Inflation, GDP and Per capita Income. From
these findings it is clear that there is a Perfect
significant relationship between 4 independent
variables and Fee income of a bank. An R-square to
1.0 indicates that we have accounted for all of the
variability with the variables specified in the model.
Conclusion, these independent variables are perfectly
related to Fee income, means that impact of these
parameters on Banks Fee income. So, we can predict Fee
income from this model using these independent
13

variables. If the economy grows, the demand for feebased services of banks services is certain to go up.
Finally, in this study obtained SWOT analysis for Optimize
the Fee income of the Bank.

SWOT Analysis For Fee income of Bank

A study undertaken by an organization to identify its
internal strengths and weaknesses, as well as its external
opportunities and threats.

Streng
ths

Opportuni
ties

Weakness

Threat
s

SBI has its roots since 1806 which was later transformed
under various names, finally SBI Was established after the
act in parliament on May 1955. In the year 1959 SBI took
over 8 state owned banks and since then it started to
grow up carrying its heritage of servicing people at
various economic levels.
Strengths:
SBI is the largest bank in India in terms of market
share, revenue assets and net

14

 SBI has the first mover advantage in commercial

banking service.
SBI has 15,869 branches in India, as on 31 March
2014, of which 10,455 (52%) were in Rural and Semiurban areas and 43,515 ATMcentres. The bank has
its presence in 36 countries engaging currency trade
all over the world.
SBI has changed its vision and mission statements
showing a sign of inclination towards new age
banking services.
SBI has very good products for all the segments like
insurance, Credit cards and so on.
Weakness:
Lack of proper technology driven services when
compared to private banks.
Employees show reluctance to attend and solve
issues quickly and customers waiting period is
longer than that of the private banks.
In spite of modernization, the bank still carries the
perception of traditional bank to new age customers.
SBI fails to attract salary accounts of corporate and
many government sector employees salary accounts
are also shifted to private banks for ease of
operations.

15

 SBI fails to attract customers due to lack of proper

advertise the products.
Opportunities

SBI is yet to modernize few of its banking operations,

there

is

better

scope

of

using

advanced

technologies and software to improve customer

relations.
Young and talented pool of graduates are in rise to
open new horizon.
Offering new products and services, expanding into
new markets, or entering new business lines, such as
brokerage services, insurance sales or financial
planning.
Threats:
This is a major threat to SBI as people tend to switch
to Private and foreign banks for better facilities and
technologies in banking service.
Customer prefer to switch to private banks and
financial service providers for loans and mortgages,
as SBI involves stringent verification procedures and
take long time for processing.

Suggested Strategies for boost up Fee income a

Bank:

16

Fee income is critical to a banks long-term success. This

is particularly true today, when a variety of economic and
regulatory factors are having a negative impact on Fee
income.
At the same time, Fee income is declining for many banks.
There are several reasons for this, including general
economic conditions and regulatory changes, such as optin requirements for overdraft protection fees and
limitations on credit card fees and debit card interchange
fees.
1. Improve collection of current fees.
This Strategy is to consistently produce fee income from
traditional sources and able to maximize fee income from
more than one source. To generate fee income from three
primary sources: service charges on deposit accounts,
gains on sales of loans and bank card and exchange fees.
This type of model might require a cultural shift for many
community banks. In order to adopt a model of this type,
our bank would have to limit (or almost eliminate) waiver
of fee.
Finally, to take account of fee waiver data in regular
management reports, so that the Bank can monitor
results.
2. Put a value on Customer relationships.
The correlation between fee income and quality of
customer service is quite high. Unmistakably, banks have
to concentrate more on providing accurate, 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.

17

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.
For relationship value pricing to work, its important that
our bank carefully analyze the costs and benefits
associated with the customer relationship to ensure the
relationship is sufficiently profitable. Also, its critical to
have systems that monitor the relationship. Banks often
lose revenue because they are unaware that the customer
relationship has changed the profit.
3. Improve Marketing on products and services.
Bank marketing has to go beyond loans and deposits.
Banks should seriously consider launching aggressive
marketing of specially priced services. This approach can
be considered for other channels of services also. There is,
however, a rider to focusing on Fee income.
Regular basis review of your strategy, plans and consider
new strategies for generating noninterest income. These
might include offering new products and services,
expanding into new markets, or entering new business
lines, such as brokerage services, insurance sales or
financial planning.
Conclusion
From the trend analysis other income to fee income ratio
is high for private banks as compare to PSU banks.
From the correlation analysis strong relation between fee
income and macro economic parameters, bank
performance indicator means that economic conditions
are impact on fee income.
From regression Analysis an R-square to 1.0 indicates
that we have accounted for all of the variability with the
variables specified in the model. So, Bank should make

18

standard monitor system and adopt new strategies on

regular basis.
Strategies
Charge higher commission for issuing draft of large
amount.
Issue and Ancash banks drafts electronically to save
the time and to provide the accurate result.
Offer the excellent customer services at the counter.
Service charges for credit cards should be increasing
at least to the bearable extend.

19