The present study examines the link between the revenue portfolio and risk- adjusted performance of banks in Indian context. The comprehensive results are presented both at aggregate level and at the bank level using the data of the year 1997 through 2006. Traditionally, it is believed that earnings from non-interest generating revenues are more stable than loan based earnings and the increase focus on these activities overall revenue and profitability volatility is reduced via diversification effects. Our results don't support the traditional thinking. On an average it is found that non-interest income is more volatile than interest income. The greater reliance on non-interest income lowers risk-adjusted performance of a typical bank. Further, the comparison of domestic and foreign banks reveals that domestic banks have relatively lower revenue and profitability volatility.
