ECONOMIES OF SCOPE IN THE INDIAN BANKING SECTOR: AN EXAMINATION OF INCOME STRUCTURE

Abstract

The Indian Banking Sector has exhibited great dynamism in its operations and functions since the introduction of banking reforms in the early 1990s. While the banking reforms have been comprehensive, encompassing several aspects of concern, of particular significance is the entry to private banks, both domestic and foreign, post easing of entry norms that has instilled competition into the system. The entry of new private sector banks and foreign banks in India have led to structural changes in the Indian Banking Sector in terms of ownership pattern, deposit structure, advances and asset-based structure, and so on. On all these dimensions, the degree of privatization of the banking sector in India is rising, even as public sector banks continue to dominate. An important implication of these developments is the increasing thrust of banks on expanding the scope of their operations in order to maintain and increase their profitability, leading to change in the income structure, among other things. Increased use of technology has further enabled delivery of a wider range of financial products and services under the same roof. The present paper seeks to gauge the changes in the bank group-wise income structure in India. The study also compares economies of scope for the three bank groups; viz., public sector banks, private sector banks and foreign banks. The study finds substantial change in the income structure of the three bank groups over two and a half decades post banking reforms. The findings establish the greater scope efficiency of public sector banks in India.