By Mahesh Nayak
Banks are pushing cross-selling to boost fee-based income amid profitability and margin pressures due to lower credit offtake, sluggish corporate capex and slowing CASA deposit growth. Leveraging digital capabilities, they are driving growth through fee income, a trend that has gained momentum since the pandemic.
Dominated by private banks, top 10 lenders experienced a 13% increase in fee income for FY25, compared to a 7% rise in net interest income (NII). Fee income was nearly one-fifth (18%) of their total income.
In FY25, top five private banks earned 22% of their income from fees, while state-run banks earned 14%. Another interesting aspect is that the top 10 banks derive 62% of their non-interest income (also known as other income) from fee income. Private sector banks led this trend, with the top five generating 80% of other income from fees, up from 74% in FY24, highlighting the increasing reliance on fee-based services.
“Banks are focusing on fee income to offset pressure on net interest margins. Private sector banks are particularly aggressive in pursuing fee income through cross-selling of products like credit cards and insurance, outpacing state-run banks in this effort,” said Rohan Mandora, associate director at Equirus Securities.
The core fee income (commissions, exchange fees, and brokerage) to total assets ratio for top banks has also been favourable with some exceptions. Union Bank reported a 10 bps improvement, while SBI, HDFC Bank, ICICI Bank, and Axis Bank saw a modest 2-5-bps increase. Kotak Bank and Bank of Baroda experienced a 4-bps decline due to RBI restrictions on onboarding new customers.
The dominance of the private banks, which have focused on fee income, is shifting. SBI chairman CS Setty in his letter to shareholders in the FY25 annual report said the bank will focus on expanding its fee-based income and leveraging digital cross-sell capabilities to drive growth and deliver long-term value.
“We are committed to improving our profitability profile through disciplined cost management, optimising our asset mix, and expanding fee-based income streams. With strong CASA growth, digital cross-sell capabilities, and margin sensitive asset allocation, we are building a scalable model for sustainable returns,” said Setty. This strategic shift is expected to help the bank navigate the challenges of a slowing credit growth and improve its overall profitability.
Karthik Srinivasan, group head, financial institution, Icra, agrees that fee-based income will continue to play a dominant role in the banking sector. “With credit growth expected to remain close to 11% in FY26, fee-based income will continue to play a dominant role, with a focus on home lans and loans against property,” he said.
“With business growth slowing, many PSBs have increased focus on capturing fee opportunities in transaction banking, third party distribution and general banking. This will lead to an increased competition for private banks”, said Mandora.
While banks are aggressively pursuing fee income to increase profitability from a limited pool, which is shrinking due to intense competition, a fee war is likely to emerge in coming days.