Banks assume a dominant role in overall economic development. Being a systemic institution any adverse performance in the banking sector affects the financial sector as a whole. There has been a sea change in the Indian banking sector since the initiation of reforms. In the era of deregulation, disintermediation coupled with technological change and recurrent bank consolidation, modern banks are diversifying their operation from traditional banking activities to include all those activities which would allow banks to earn non-interest income. The banks are venturing into areas like investment banking, insurance, merchant banking etc. In the present study an attempt is made to evaluate in the context ofNorth-East Indian bank branches whether Diversification, explained by Non-Interest income, has any significant impact on the branch total income. In other words it is an endeavour to assess the most influential element i.e., Non-Interest Income or Interest Income, on the banks profitability. With the help of branch level data on 60 bank branches from 2003–2007, it is realised that as compared to Interest Income, Non-interest income has significant impact over the branch total income.
Diversification, Non Interest Income, Interest Income, Bank Branches
