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iii) Other Priority Sector Lending:  Fee based income from ancillary business
Cost per Account Rs 659 including forex business, if any.
Yield on Advances 12%  Notional income from float funds generated
Cost of Funds (average) 7.5% because of ancillary business.
BEP = 659/ 0.12 – 0.075 = RS 14637 = Costs incurred are from:
RS 14700.00 (Say)  Interest costs of deposits placed
 Operating costs (servicing) costs for ancillary
iv) Industry & Trade Advances: business including forex business, if any.
Cost per Account Rs 1040  Funding cost of deposits for advances taken.
Yield on Advances 12%
Cost of Funds (average) 7.5% The income from advances is the interest or discount
BEP = 1040/ 0.12 –0.075 = RS 23131 = earned in such accounts. The cost of deposits (also
RS 23200.00 (Say) known as cost of funds) is the interest paid by the
branch (or the bank) on its average deposit liabilities.
v) Other Loans and Advances: For servicing all the products (facilities) availed of by
Cost per Account Rs 737 the customer, operating costs are incurred. Operating
Yield on Advances 12% costs are worked out by banks periodically, ideally once
Cost of Funds (average) 7.5% every year. The total number of transactions under
BEP = 737/ 0.12 – 0.075 = RS 16390 = each facility (product) multiplied by the transaction cost
RS 16400.00 (Say) will give the servicing (operating) costs for that facility
(product).
Customer Profitability Analysis: Besides, the following additional data as regard to the
Customer Profitability Analysis, is a methodical customer’s account is also required:
attempt, which takes into account the income earned i) Weekly average balances of deposit/advance
along with other benefits derived and after deducting accounts for a year;
the related costs in servicing the business placed by ii) Interest paid on deposits/received on advances
the customer with the bank. For customers who have during a year;
been availing a mix of products, it may happen that iii) Number of transactions of deposits/advances/
the bank may be making a loss in one product, while it collections and other ancillary facilities accounts;
may be able to earn a profit from another product. It is and
therefore essential to take a holistic view of use of each iv) Exchange/Commissions earned.
product and then to find out whether the account as a
whole gives the bank enough profit margin. On many Example of a Calculation of Customer Profitability of
occasions, it so happen that customers availing multiple a Corporate Customer
products, may request for concessions on interest rate Modern Engineering Works Ltd. (MEWL) is a public
or opn commissions. All these requests come with the limited company having its headquarters in one of the
arguments that they are bank’s valued customers, major metropolis (M1). It has four divisional offices at
maintain a large deposit or have availed of large four other metros viz. M2, M3, M4 and M5. Modern
advances. However, placing a large deposit or taking bank is its main banker. Modern bank has sanctioned a
a large advance does not necessarily make a customer cash credit limit of Rs5 crores with sub-limits of Rs50
profitable unless all aspects of their dealings with the lakhs each at M2, M3, M4 and M5 branches of the bank
bank are accounted for. to be operated by the divisional offices of MEWL. The
The profitability of an account depends on net surplus other products availed of by MEWL are:
of the income received (interest income and non-interest
income, e.g. exchange/commission earned) and costs 1. Purchase of Cheques and Bills drawn outside the
incurred (interest expenditure-funding cost and non- above metros tendered at the above branches.
interest expenditure, i.e. operating costs). Modern bank has sanctioned a limit of Rs75
lakhs under this facility (product).
Incomes received are from: 2. Collection account are maintained at cities C1,
 Interest earned on advances C2, C3 and C4 from where balances in thousands

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