In the reform years, there has been a considerable increase in the fee-based activities of the Indian commercial banks. For the foreign commercial banks operating in India, such activities generated a significant proportion of their incomes even during the pre-reform period. However, for the Indian commercial banks, these activities were relatively unimportant as the banks depended mainly on their fund-based activities for the generation of income.
By the term fee-based activity, one refers to the various commission-based activities of commercial banks which do not have any direct reflection on the commercial bank's balance sheet either on the asset or on the liability side. Inter alia, these activities include foreign exchange transactions, guarantees, endorsements, etc., which constitute a supplementary source of income for the commercial banks. The extent of fee-based activity undertaken by a commercial bank can be measured from the other incomes and the contingent liability of the bank.
Other incomes include, inter alia, commission, exchange and brokerage, net profit (loss) on exchange transactions, net profit (loss) on sale of investments, miscellaneous income, etc. By the term contingent liability we mean to imply the liability that would be imposed on the relative bank on account of providing guarantee/endorsement, etc. (in the event of default by the client in favor of which such guarantee/endorsement is given). |
