The Dynamics of Revenue Diversification and Efficiency of Banks in India

Sarkar, Sonali

doi:10.1177/2277975216644807

Cited by 7 publications

(5 citation statements)

References 71 publications

(86 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Berger et al (2010) assert that diversification is associated with the lower profit and higher cost of the Chinese banking industry. Similarly, the revenue diversification has a mixed performance on the efficiency of banks (Sarkar, 2016) and adversely influences the efficiency (Phan et al, 2018). But, there is scarce in the research on the impact of the bank diversification on bank's productivity in India.…”

Section: 23mentioning

confidence: 99%

Measurement and determinants of total factor productivity: evidence from Indian banking industry

Bhuyan

Patra

Bhuian

2021

IJPPM

View full text Add to dashboard Cite

PurposeThe purpose of this study is to measure the level of total factor productivity of the Indian banking sector and to identify both the bank-specific and macroeconomic determinants of the total factor productivity after the global subprime mortgage crisis.Design/methodology/approachThe research sample consists of 61 commercial banks including 21 public sector banks, 18 private sector banks and 22 foreign banks. The annual data is collected from the website of Reserve Bank of India from 2008 to 2019. The authors employed the non-parametric DEA approach to estimate Malmquist total factor productivity index for each bank as well as across different ownership groups. The panel data estimation technique was used to identify the determinants of total factor productivity.FindingsThe results suggested that an increase in the technological shift raised the bank's productivity above the optimal frontier. Among the bank-specific determinants, the bank size and bank diversifications are significantly declining productivity, whereas credit-deposit ratio and return on asset significantly increasing productivity. Among the macro-specific determinants, inflation, growth rate and fiscal deficit ratio negatively affect productivity, whereas capital formation to the GVA ratio boosts the level of productivity.Research limitations/implicationsThe authors have used intermediate method to select the inputs and outputs as per the suitability to the context. However, the disaggregate level such as state and district level analysis can be done using production and value-added approaches to explore the regional variations of the banking performance. Furthermore, the parametric methods such as stochastic frontier analysis can be used to examine banking performance, which the authors left for the future research.Practical implicationsThis study suggested that banks should increase the economies of scale of their total assets and focus on the interest-earning activity. The banks need to proactively operate the business policy by following the changing path of inflation. The banks need to reduce their rate of fiscal-deficit to the GVA with the purpose to boost their level of productivity.Originality/valueThe study provides an important implication for bankers and policymakers in terms of heightening the banking performance during the period of dynamic economic events.

show abstract

Section: 23mentioning

confidence: 99%

Measurement and determinants of total factor productivity: evidence from Indian banking industry

Bhuyan

Patra

Bhuian

2021

IJPPM

View full text Add to dashboard Cite

show abstract

“…The relationship between income diversification and bank performance has been empirically analyzed primarily for developed economies such as USA and European Unions (Acharya et al, 2006;Brighi and Venturelli, 2014;Chen and Kao, 2014;Chen and Lai, 2017;Chronopoulos et al, 2011;Deng and Elyasiani, 2008;DeYoung and Roland, 2001;Edirisuriya et al, 2015;Elsas et al, 2010;Elyasiani and Wang, 2012;Goddard et al, 2008;Huang and Chen, 2006;Jouida et al, 2017;Klein and Saidenberg, 2010;Köhler, 2014;Laeven and Levine, 2007;Lepetit et al, 2008;Mercieca et al, 2007;Rime and Stiroh, 2003;Schmid and Walter, 2009;Stiroh, 2004;Stiroh and Rumble, 2006) and developing economies such as Brazil (Tabak et al, 2011), China (Berger et al, 2010;Li and Zhang, 2013;Liang et al, 2018;Meng et al, 2018;Nguyen and Nghiem, 2016;Zhou, 2014), India (Nguyen and Nghiem, 2016; Bank performance in India Pennathur et al, 2012;Sarkar, 2016;Sharma and Anand, 2018;Trivedi, 2015), Malaysia (Brahmana et al, 2018;Nguyen, 2018), Philippines (Meslier et al, 2014;Nguyen, 2018) and Vietnam (Nguyen, 2018;…”

Section: Empirical Literaturementioning

confidence: 99%

“…Trivedi (2015) revealed that there had been a positive impact of non-interest income and fee-based income on the total operating income and bank profitability for the period 2005-2012. Similarly, Sarkar (2016) investigated the relationship between income diversification and technical and pure technical efficiency for Indian banks sample during 1999-2000 to 2012-2013. They confirmed that revenue diversification has positive and significant impact on both efficiency estimates under intermediation approach thus supporting the conglomeration hypothesis.…”

Section: Empirical Literaturementioning

confidence: 99%

Dynamics of income diversification and bank performance in India

Vidyarthi

2019

JFEP

View full text Add to dashboard Cite

Purpose The purpose of this paper is to examine the dynamics between income diversification and performance (cost, profit, revenue, technical, pure technical and scale efficiency) for 38 listed Indian banks within panel data framework during the period 2004-2005 to 2015-16. Design/methodology/approach This study computes bank’s cost, profit, revenue, technical, pure technical and scale efficiency within intermediation approach with data envelopment analysis (DEA) as a performance indicator, followed by exploring the association between income diversification and bank performance using truncated Tobit regression within panel data framework. Findings Tobit regression results revealed inverted U-shaped relationship between the income diversification and estimated efficiency parameters for the overall panel. Size and bank intermediation ratio seems to be a major factor in exploiting the potential benefits of income diversification. The author reconfirmed the inverted U-shaped relationship with these efficiency parameters for exclusive subsamples consisting of government-owned and private sector banks. Research limitations/implications Inverted U-shaped relationship between the income diversification and estimated efficiency parameters suggest that banks should go for limited diversification to improve performance. Thus, regulators and banks should pursue limited diversification strategy for improving banking efficiency. Originality/value This study computes bank performance (cost, profit, revenue, technical, pure technical and scale efficiency) based on DEA followed by exploring the association between performance and income diversification for 38 Bombay stock exchange listed banks.

show abstract

“…Most of the empirical studies in the extant literature have investigated the income diversification, profitability, stability and efficiency nexus from various perspectives through various methodological approaches (Stiroh, 2004a, 2004b; Stiroh and Rumble, 2006; Chiorazzo et al , 2008; Lepetit et al , 2008; Elsas et al , 2010; Chronopoulos et al , 2011; Gamra and Plihon, 2011; Pennathur et al , 2012; Elyasiani and Wang, 2012; Gurbuz et al , 2013; Edirisuriya et al , 2015; Sarkar, 2016; Nisar et al , 2018; Doan et al , 2018; Vidyarthi, 2020; Luu et al , 2020). However, there is an acute paucity of literature regarding the determinants of bank income diversification.…”

Section: Introductionmentioning

confidence: 99%

Determinants of income diversification: empirical evidence from Indian banks

Thakur,

Arora

2023

IJLMA

View full text Add to dashboard Cite

Purpose This study aims to explore the determinants (bank-specific, industry-specific and macroeconomic) of income diversification across interest income and non-interest income as well as for non-traditional income sources (non-interest income) from 2004–2005 to 2021–2022. Design/methodology/approach An unbalanced data set comprising 110 Indian commercial banks with 1480 observations is sampled in this study. Because of the bounded nature of the dependent variables (proxies of income diversification), the panel Tobit regression model is used. Findings The findings reveal that income diversification is positively influenced by bank size, technological advancements, cost–income ratio, return on assets, market competition and inflation in the economy. However, the decision to diversify income sources is adversely impacted by the capital ratio, GDP and financial intermediation ratio. Moreover, factors such as asset quality (loan loss provisions) and liquidity ratio do not directly influence the diversification strategies in the Indian banking industry. Practical implications The present study uses an extensive set of variables to provide insights into key factors for bank managers, regulators and policymakers to consider before developing diversification strategies. Originality/value To the best of the authors’ knowledge, this is the first study to examine the various bank-specific and macroeconomic determinants that affect income diversification in the Indian banking sector. The current study also investigates new variables such as technological advancements and a market concentration index for measuring competition, which have not been investigated in existing literature concerning bank income diversification in the Indian context.

show abstract

The Dynamics of Revenue Diversification and Efficiency of Banks in India

Cited by 7 publications

References 71 publications

Measurement and determinants of total factor productivity: evidence from Indian banking industry

Measurement and determinants of total factor productivity: evidence from Indian banking industry

Dynamics of income diversification and bank performance in India

Determinants of income diversification: empirical evidence from Indian banks

Contact Info

Product

Resources

About