Impact of Fee-Based Services on the Financial Performance of the Banks: An Empirical Study Sunita Kumari Malhotra*, Shivangi Sarabhai**, Prem Malhotra*** Abstract The banking industry forms an integral part of the entire economy. For long, the basic function of banks was to lend and receive funds and earn the difference in the form of interest. But after liberalization, the entry of several private and foreign banks led to intense competition and deregulation of interest. As a consequence, the profitability of banking sector declined considerably. To overcome this growing instability in profits, the banks shifted their focus from fund-based to fee-based activities that involve the receipt of revenue by providing services. Though private banks and foreign banks have extensively increased their share in fee income, public banks still operate majorly on the traditional sources of income generation. The purpose of this research is to identify the problems faced by banks in expanding their fee-based services and study the effect of increasing share of fee income on the financial performance of the banks. Using the regression analysis and paired t-test, the impact of fee income on the overall profitability is tested. It is observed that fee income has a positive impact on the profitability and financial performance of the banks. Using the trend forecasting, it is validated that increasing the share of fee income in public banks leads to increase in profitability. Moreover, a model is developed that indicates the problems faced by banks in diversifying their fee-based services, the measures to be undertaken and the anticipated outcomes therein. Keywords: Fee Income, Fund-based Income, Total Income of Banks, Interest Expended, Profitability, and Diversification * Associate Professor, Department of Management, Faculty of Social Sciences, Dayalbagh Educational Institute, Agra, Uttar Pradesh, India. Email: sunita.malhotra3119@gmail.com ** Student, MBA, Integrated, Dayalbagh Educational Institute, Agra, Uttar Pradesh, India. Email: shivangi.sarabhai14@gmail.com *** Lecturer, Department of Humanities, Anand Engineering College, SGI Group, Agra, Uttar Pradesh, India. Email: reply2prem@gmail.com Journal of Entrepreneurship and Management Submitted: 05 February, 2019 8 (3) 2019, 45-54 Accepted: 18 July, 2019 http://publishingindia.com/jem/ Introducton Days are gone when banks were meant only for borrowing and lending activities. Nowadays, banks have a plethora of other activities to their credit. Deregulation of interest rate and liberalization of Indian economy led to increased competition, which required banks to explore other business opportunities. Banks, in the initial stages, earned proft by the interest gap, i.e. the interest earned and expended. But over the period of time, banks have shifted their focus to various fee-based services. This shift is evident in many western countries where a signifcant portion of banks’ earnings is from fee-based activities. While, in the East this growth is still in its initial stage. In the context of Indian economy, the banking sectors are fnding new strategies and products to diversify their portfolio and enhance their market share. This is done with an attempt to foster proftability and stability in the sector. Over the years, it is seen that new private and foreign banking units have tremendously shifted their market base from fund base to fee-based services and encountered a more proftable performance. But public sector banks are still resistant to shift toward fee-based activities. With the recent deregulation of interest rate, the banks have completely changed their income structure. The focus on fee income is emphasized as now the interest rates are fxed by the market forces; as a result of increased competition, this interest rate has fallen down signifcantly. On the other hand, growing revenue rates from fee-based services have attracted banks to increase