Title: Income diversification and bank profitability: exploring the importance of macroeconomic factors in India

Authors: Ajit Karnik; Sudipa Majumdar

Addresses: School of Business, Middlesex University Dubai, Block 17, Dubai Knowledge Park, UAE ' Symbiosis School of Economics, Symbiosis International University, Pune, India

Abstract: Financial reforms in India intensified competition between bank ownership groups, resulting in narrowing of interest margins and forcing banks towards non-interest income (NII). Surging non-performing loans (NPLs) also pushed banks to diversify their incomes. This study employs panel data analysis to investigate the impact of income-diversification strategies of public, private and foreign banks in India during 2005-2020. Trends in NII have been explored, along with bank-specific and macroeconomic variables to study their impact on bank profits. Finally, inclusion of monetary and fiscal policy variables highlighted the importance of inflation on the banking sector, but its impact varied across ownership groups.

Keywords: non-interest income; NII; bank profitability; diversification; bank; ROA; ownership; GMM; India.

DOI: 10.1504/IJBEM.2025.142928

International Journal of Business and Emerging Markets, 2025 Vol.17 No.1, pp.1 - 25

Received: 23 May 2023
Accepted: 21 Jun 2023
Published online: 02 Dec 2024 *

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