Introduction There are two broad sources of bank revenues: 1. 2. Interest income Non-interest income.

Interest income is generated from what is known as the spread. The spread is the difference between the interest a bank earns on loans extended to customers, corporate etc and the interest paid to depositors for the use of their money. It is also earned from any securities that the banks own, such as treasury bills or bonds. Non-interest income is earned by providing a variety of services, such as trading of securities, assisting companies to issue new equity financing, securities commissions and wealth management, sale of land, building, profit and loss on revaluation of assets etc. As compared to the developed world, the Indian banking sector, apart from the relying on traditional sources of revenue like loan making are also focusing on the activities that generate fee income, service charges, trading revenue, and other types of noninterest income. While noninterest income plays an important role in banking revenues in the developed world, its contribution to the total income of the Indian banking was 25% as on 31st March 2008. Components of non interest income The major components of non interest income in our banking sector are as follows: 1. 2. 3. 4. 5. 6. Commission/ exchange and brokerage Profit or loss on Sale of investments Profit or loss Sale of land& buildings Profit/loss on revaluation of investments Profit or loss on Exchange transaction etc. Miscellaneous income source which includes advisory, trading etc.

Share of various sources of non interest income The share of various sources of non interest income to the total income of banking sector as on 31st march 2008 is shown in the pie chart below: In the above figure we find that the highest contribution to the non interest income has been of the commission followed by sale of investments, miscellaneous income and exchange transactions

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Reasons for increase in the non interest income Now if we look at the reason for the increase in the non interest income of the banking sector we will find that it has majorly increased due to following reasons: 1. With economy growing at an unprecedented rate of 9.4 per cent during 2006-07 and acceleration in the growth rate being attributable to the buoyancy in the industrial and service sector, the demand for fee-based services of banks has gone up and as a result of which the non interest income has also risen up. Noninterest income is an effective way used by banks to respond to its squeezing margins At the bank level, greater reliance on noninterest income, particularly trading revenue, is associated with lower risk-adjusted profits attached to it.

2.

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Challenges involved

1. Not aggressive direct customer interaction of public sector banks. 2. High cost and less expertise involved in launching of innovative products/services as per the
3. customers expectations. Technology requirements.

Conclusion After studying the non interest growth pattern of the Indian banking sector over a period of 11 years we can say that it is slowly and gradually becoming one of the important avenues for our Indian banks to generate revenue from. In this respect we see that not only private banks and foreign banks are ahead but also our public sector banks are gradually catching it. We can say that it to be an important source available with our banking sector to respond to the squeezing margins and meeting the shareholders expectations.

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