Asset quality, non-interest income, and bank profitability: evidence from Indian banks

Ahamed, M Mostak (2017) Asset quality, non-interest income, and bank profitability: evidence from Indian banks. Economic Modelling, 63. pp. 1-14. ISSN 0264-9993

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Abstract

This paper investigates whether a shift toward non-interest income activities improves the profitability of Indian
banks and, if so, how it varies across ownership groups and banks with different asset qualities. Our findings
show that higher share of non-interest income yields higher profits and risk-adjusted profits; in particular when
banks are involved in more trading activities. The results indicate that private foreign banks earn more risk-adjusted
profits compared to public sector and private domestic banks. Furthermore, we also find that income
diversification benefits more to the banks that have lower asset quality compared to the banks that have higher
asset quality. The findings are insensitive to dynamic panel data estimations and alternative sample
specification. The results of this paper provide valuable insights for policymakers, and conclude that ensuring
diversification activities enhances bank profitability, in particular for the banks that have lower asset quality.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Business and Management
Subjects: H Social Sciences > HG Finance > HG1501 Banking
Depositing User: M. Mostak Ahamed
Date Deposited: 04 Oct 2017 08:28
Last Modified: 04 Oct 2017 08:28
URI: http://sro.sussex.ac.uk/id/eprint/69912

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