Income Diversification and Its Impact on Competitiveness, Profitability and Risk of a Commercial Bank – A Case Study of Union Bank of India

The purpose of this article is to assess whether diversification of income generating activities of Union Bank has contributed in enhancing the share of non-fund income in net income of the bank and to provide plausible rationale that might have affected this pattern as well as its effect on the bank's competitiveness, risk and profitability during the period 2005–06 to 2014–15. It has been found that the diversification process was successful in enhancing the share of non-fund based income in net income of the bank for a limited period only, that is, until 2009–10. This is on account of both domestic and global reasons. Moreover, after 2009–10 bank's competitiveness and profitability have eroded while all three types of risk, namely, asset risk, market risk and insolvency risk have increased. Policy prescriptions require government to recapitalise the public sector bank in the short run, whereas in the long run bank must considerably improve its recovery performance to enhance its interest and non-interest income as well as provide lending for viable projects only and against suitable collateral securities.