Exploring the Financial Sustainability of Indian Public Sector Banks: A Study on Revenue Diversification Patterns

This article delves into the intricate relationship between revenue diversification and the financial performance and sustainability of both public and private sector banks in India. Through a comprehensive analysis of nine years’ panel data from 2015 to 2023 and applying descriptive statistics, the Herfindahl–Hirschman index, panel data regression models and generalized method of moments, our findings reveal a concerning trend—Revenue diversification is exerting a negative influence on the financial well-being of the Indian public sector banks (PSBs) and positively impacts the private sector banks. Contrary to conventional wisdom, the pursuit of diversifying revenue streams has not yielded the anticipated benefits for Indian PSBs. Instead, it has emerged as a source of financial instability and vulnerability. Hence, our findings suggest that a focused approach to revenue sources may be more advantageous for the PSBs. This study underscores the importance of strategic revenue planning and resource allocation for Indian PSBs to enhance their financial performance and self-sufficiency. The results have practical implications for policymakers, bank executives and stakeholders in the Indian banking sector, offering guidance on optimizing revenue strategies to ensure the long-term sustainability of PSBs in India.