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Ownership structure, size, and interest income substitution by banks: An exploratory study in the Indian context

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  • Navneet Kaur
  • Parneet Kaur

Abstract

This study explored how emerging economy banks are rebalancing their interest income and non‐interest income to ensure stability. We set our study in India during the period 2005–2017. Interestingly, we observe that time–series correlation of interest income growth and non‐interest income growth for public sector banks as well as for private banks is on the negative side. We applied panel vector auto regression and generalised method of moments methodology. This study found that when bank interest income falls, they try to increase their non‐interest income to offset their losses to a certain extent, and the trend is increasing. Public sector banks are overall substituting non‐interest income for a reduction in the margin, and there is an increasing trend for this substitution. Based on the size of banks, it has been found that change in non‐interest income in the subsequent year due to change in interest income in the previous year is there for large banks, whereas no such significant change has been found in case of small banks.

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  • Navneet Kaur & Parneet Kaur, 2020. "Ownership structure, size, and interest income substitution by banks: An exploratory study in the Indian context," Australian Economic Papers, Wiley Blackwell, vol. 59(3), pages 279-301, September.
    • Handle: RePEc:bla:ausecp:v:59:y:2020:i:3:p:279-301
    DOI: 10.1111/1467-8454.12181
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