The Interdependent Relationship between Interest and Non-Interest Income of Indian Banks: A Study of Diversification of Income, Risk, and Traditional vs. Non-Traditional Banking Activities.

Abstract

The contribution of interest income to revenue has been one of the cores for Indian banking sector which is similar to other economies. In quest to reduce their risk exposure and earn other sources of income the Indian banks have turned into non-interest income sources. The purpose of this article is to focus on Indian banks inter and intra-income dynamics’ and how this affects their potential income diversification and risk in traditional vs. non-traditional banking activities. In particular, we assess the question of income diversification strategies in Indian banks, what is the share of non-interest income in the total income of banks, and whether a more diversified portfolio helps to reduce the risks of the banks. In particular, the analysis of several surveys was performed to investigate the issue of the impact of changes in the yield curve on the income of banks and the convergence of banks towards interest or non-interest income as a result of these changes. In addition, we address the issues of the degree of non-interest income in enhancing the safety and soundness of financial institutions during turmoil as well as the influence of policy on both interest and non-interest income. This study seeks to fill the gap and provide internally consistent coherent relations of interest and non-interest income courses to the Indian banking system.