Analysis of Income Diversity of Commercial Banks in India

Abstract

The diversity of banking operations has transformed the banking business model in India. Traditional banking was reliant on the interest income generated from disbursement of loans and advances however there has been a transition in the banking business over a decade. The changing facets of service offerings by commercial banking has resulted into upsurge in fee based revenue. Using a sample of 20 major banks the paper aims to identify the banks concentration of non-traditional activities and consequently its impact on reducing the volatility of profits. Section I of the study will focus on the long run trends in the composition and amount of non-interest income. Section II will assess the relationship between the bank product mix~ non-interest income and banks stability. The study exhibits that smaller banks are more involved in non interest earning activities relative to their large counterparts. Panel data regression analysis and review of literature supports that technological factor has been influential in driving the non interest income further it is evidenced that there exists a positive relationship between fee based income and banks financial performance.