Types of Services Offred by Bank Essay Example for Free

Types of Services Offred by Bank Essay (The Economic Times (India) Via Thomson Dialog NewsEdge)Banks offer the following services to account holders at their specified branches multi-city / Payable at Par (PAP) cheque facility, anywhere banking facility, trade services, phone banking facility, internet banking facility, credit card, debit/ATM card, mobile banking and Real Time Gross Settlement. Foreign banks are expanding the number of products on offer, their complexity such as derivatives, leverage financing. Doorstep banking facilities are being offered by some of these banks to cater to convenience lifestyle of its customers. Private banks are extending services including wealth management and equity trading apart from credit cards. How do banks price their services? The pricing mechanism is dependent on client relationship and the nature of the transaction. The pricing can be arrived at by profiling customers into different segments. The large corporate segment comprises of the bulk and large value transactions. This segment is characterised by multiple service relationships. The pricing in this segment is transaction based and depends on the size of transactions and on the banks relationship with the corporate. Hence, the pricing is decided on a one to one basis and public. The other segments comprise the brokers, small and medium enterprises (SME), other banks and the retail segment. In each of these cases, the pricing is not made public and is determined on the basis of the nature of the transaction and the banks relationship with the client, on a one to one basis. Typically, high volumes and low value characterise the SME segment. Therefore the pricing for this segment differs from that of the large corporates. Similarly the pricing for the banks is very different. In the retail segment, the bank publishes its tariff. How do services contribute to the banks income? Increasingly banks are witnessing a growth in their non-interest or fee-based incomes. With interest spreads decreasing, banks have little option but to ramp up their revenues from fee-based income. Fee-based income constitutes a major portion of a banks other income. The ratio of other income to total income is an indicator of the size of fee-based income. Treasury incomes of public sector banks are no longer the major revenue driver and have been coming down as a result of rising interest rates. Volatility of interest rates are compelling banks to increase their fee based income. What is non-fund based income? The non-fund based income comprises of revenues from both financial commitment and services rendered. Financial commitment includes guarantees, letters of credit and bankers acceptances etc. The fees charged may vary from bank to bank and is dependant on the relationship of the bank with the client and the size of the transaction. On the other hand, the revenues from services rendered include fees from funds transfer and enabling services like ATM, internet banking etc. The revenues from funds transfer come from corporate services such as cash management, foreign exchange remittances and from retail services including drafts, pay orders etc. Which is the most important component for the fee-based income of banks? The cash management business contributes to banks fee based revenue stream in a major way. The cash management business comprises four types of services including collection of outstation cheques, disbursement of outstation cheques, payment of dividends, interest, and refunds and e-business. The tariff differs depending on the volumes, the banks profitability and the banks relationship with the client. As a proportion of the total fee based income, cash management is the most important component. The other streams of income like auto loans, personal loans, loans against shares among others are residual. When did RBI grant freedom to banks to prescribe service charges? Indian Banks Association (IBA) has dispensed with the practice of prescribing service charges to be levied by banks for various services rendered by them. With effect from September 1999, the Reserve Bank has granted freedom to banks to prescribe service charges with the approval of respective board of directors. Why is RBI taking note of different service charges levied by banks? RBI has been receiving representations from the public about unreasonable and non-transparent service charges being levied by the banks. The RBI has directed the banks to display and update on their web sites, offices and branches, the details of the charges pre-scribed by them for various services. It has advised the banks to display the charges in specified formats. The display may also be in local language. Hitherto, it was left to the banks to fix charges consistent with the cost of providing these services and also to ensure that customers with low value/volume of transactions were not penalised.