Income Diversification and Bank Stability: Evidence from India

Navneet Kaur; Santosh Srivatsav; Nemiraja Jadiyappa; Parneet Kaur

doi:10.20944/preprints201811.0504.v1

Preprint Concept Paper Version 1 Preserved in Portico This version is not peer-reviewed

Version 1 : Received: 18 November 2018 / Approved: 20 November 2018 / Online: 20 November 2018 (15:29:13 CET)

Modern portfolio theory claims that diversification into non-correlated or negatively correlated activities reduces the overall risk of a portfolio. Considering the total income of a bank as a portfolio of interest income and non-interest income, this paper investigates how the variability of interest income and non- interest income, and covariance between interest income and non-interest income influence the various risk factors of banks. We set out a study in the Indian context. We have extracted data for the period 2005-2017 and employed an extended version of Ridge, Lasso and Elastics Net regression to take care of multi-collinearly in our data. We have considered 10-fold cross-validation techniques to get optimal values of tuning parameters for Ridge, Lasso, and Elastics Net regression (which is a convex combination of ridge and the LASSO). We have compared different regression techniques by comparing RMSE and R2. We observe that non-interest income is positively correlated with interest income in the Indian context, but it does stabilize variance, idiosyncratic risk & market risk (Beta) of Indian Banks.

Income diversification; idiosyncratic risk; emerging economies; Ridge/Lasso/ Elastics net regression

ARTS & HUMANITIES, Other

Your full name

Your affiliation information (e.g., name of your university/institution/organization)

Not displayed online.

Your Email address (not made public)

Please leave your comment to this article below.

Mathematical equations can be typed in either LaTeX formats \\[ ... \\] or $$ ... $$, or MathML format <math> ... </math>. Try the LaTeX or MathML example.

Type equation:

Preview:

Copy equation into message below

Close menu

Please click a symbol to insert it into the message box below:

Please enter the link here:

Optionally, you can enter text that should appear as linked text:

Copy link into message below

Close menu

Please enter or paste the URL to the image here (please only use links to jpg/jpeg, png and gif images):

Copy image into message below

Close menu

Type author name or keywords to filter the list of references in this group (you can add a new citation under Bibliography):

No existing citations in Discussion Group

Wikify editor is a simple editor for wiki-style mark-up. It was written by MDPI for Sciforum in 2014. The rendering of the mark-up is based on Wiky.php with some tweaks. Rendering of mathematical equations is done with MathJax. Please send us a message for support or for reporting bugs.

Close menu

Please declare any conflicts of interest you may have with this paper, financial or otherwise.

I do not have a conflict of interest

I would like to declare a conflict of interest

Display my name on the website I want to get recognition for my comment on Publons

[what’s this?]. Link your accounts here

Captcha

Renew

I accept the following conditions:

Comments must follow the standards of professional discourse and should focus on the scientific content of the article. Insulting or offensive language, personal attacks and off-topic remarks will not be permitted. Comments must be written in English. Preprints reserves the right to remove comments without notice. Readers who post comments are obliged to declare any competing interests, financial or otherwise.

Notify me about updates to this article or when a peer-reviewed version is published.

Upload a Image(max file size 2MB)

Income Diversification and Bank Stability: Evidence from India

Abstract

Keywords

Subject

Comments (0)