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Asset quality, non-interest income, and bank profitability: evidence from Indian banks
This paper investigates whether a shift toward non-interest income activities improves the profitability of Indian banks and, if so, how it varies across ownership groups and banks with different asset qualities. Our findings show that higher share of non-interest income yields higher profits and risk-adjusted profits; in particular when banks are involved in more trading activities. The results indicate that private foreign banks earn more risk-adjusted profits compared to public sector and private domestic banks. Furthermore, we also find that income diversification benefits more to the banks that have lower asset quality compared to the banks that have higher asset quality. The findings are insensitive to dynamic panel data estimations and alternative sample specification. The results of this paper provide valuable insights for policymakers, and conclude that ensuring diversification activities enhances bank profitability, in particular for the banks that have lower asset quality.
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Publication status
- Published
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- Published version
Journal
Economic ModellingISSN
0264-9993Publisher
ElsevierExternal DOI
Volume
63Page range
1-14Department affiliated with
- Business and Management Publications
Full text available
- No
Peer reviewed?
- Yes
Legacy Posted Date
2017-10-04First Compliant Deposit (FCD) Date
2017-10-03Usage metrics
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