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Corporate fee income of banks continues to dwindle as loan demand and investment activities stay muted in the current uncertain macroeconomic environment. Bankers said in the near-term, the growth will be driven by the retail side where income from fees and commissions has been increasing on the back of rising card spends and distribution of third-party products.
“If you look at it in the context of core fees of the bank, I would say that (in) the immediate term drivers would continue to be from the retail side. Within retail, trends in both liabilities and asset-related fee income continue to be healthy,” NS Kannan, executive director at ICICI Bank, told analysts after the bank's second quarter earnings announcement in October.
The country's largest private bank now earns 60 per cent of its fees from the retail side. In the July-September period, the overall growth in ICICI Bank's fee income was 5.5 per cent. Retail fees grew at over 20 per cent, while there was a decline in fee income on the corporate side.
Analysts explained the growth in foreign exchange fees earned by banks have been slow due to relatively lower volume of remittances. Also, the exchange rate stability has resulted in moderation of hedging activities by corporate groups. The uncertain economic environment has dampened business confidence leading to a slowdown in issue of bank guarantees and affecting commercial banking fees. Lending-linked fees have shown no signs of pick-up in absence of corporate loan demand.
“We don't expect banks to report significant improvement in fee income growth during the third (October-December) quarter. On the corporate side, activities are still low and recovery is still a couple of quarters away. We expect retail fees to rise as card spends continue to increase,” a banking analyst with a domestic brokerage said on condition of anonymity as he was not authorised to speak to the media.
Bankers said distribution of third-party products was also helping them to increase earnings from retail fees.
