Diversification and Profitability of Scheduled Commercial Banks during Reforms in India

During the decades of economic reforms in India, the financial sector in general and banking in particular, witnessed massive changes. They were in terms of enhanced diversification, changes in income structure and profitability. Although the Indian banking space is dominated by the state run public sector banks, the new generation private sector banks and foreign banks have been creating competitive pressures for them. During the reforms of the 1990s, commercial banks in India have transformed themselves by diversifying their business pattern, which has led to the changes in their income structure, in favour of non-interest income or fee-based other income. It has been a booster for enhancing their profitability in recent years. The sources of both the interest income and the non-interest income of different bank groups, seems to be varying in terms of their stability. In this backdrop, this paper has attempted an in-depth analysis of diversification, and profitability, of different bank groups between the phases of economic reforms and financial crisis.