Market reaction to banks revenue diversification strategy: evidence from India

ABSTRACT

This paper examines whether revenue diversification by banks is beneficial using data from India for the period 1995–2018. We use non-interest income to total income ratio as a measure of revenue diversification, and use market measures of returns and risk to evaluate the benefits. The results indicate that a higher share of non-interest income in total income leads to a higher market return and lowers the market risk. These results broadly remain the same even when we divide the sample into public (government owned) and private banks.

KEYWORDS:

• Diversification
• returns
• risk
• Indian banking system

JEL CLASSIFICATION:

• G11
• G21
• L25

Acknowledgments

We would like to thank the Editor David Peel and the anonymous referee for their highly constructive comments.

Disclosure statement

No potential conflict of interest was reported by the author.