Title: Does diversification of income source influences bank's risk-return characteristics? Evidence from the Indian market

Authors: Shweta Sharma; Anand

Addresses: Indian Institute of Management, Ranchi, Meur's Road, Ranchi, PIN-834 008, India ' Indian Institute of Management, Ranchi, Meur's Road, Ranchi, PIN-834 008, India

Abstract: This paper examines how diversification of banks income sources is associated with bank risk and return for Indian banks. We document that income diversification is positively related to bank profitability and risk adjusted returns but does not have any significant impact on banks asset quality for full-sample. Although for large banks no direct diversification benefits are recorded. But for small and medium banks, diversification improves the profitability but adversely affects the bank's asset quality. These results hold against an array of robustness tests using alternative diversification measures, testing for the role of banks asset size and ownership as moderating variables.

Keywords: income diversification; bank performance; Hirschman-Herfindahl index; HHI; Shannon entropy; SE; profitability; risk adjusted returns; asset quality; India.

DOI: 10.1504/IJICBM.2017.087314

International Journal of Indian Culture and Business Management, 2017 Vol.15 No.3, pp.350 - 379

Received: 07 May 2016
Accepted: 28 Oct 2016
Published online: 12 Oct 2017 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article