Does Fintech Drive Income Diversification in Banks? Evidence from India’s Public and Private Sectors

Abstract

This article examines whether fintech adoption impacts income diversification among the Indian commercial banks. It also checks whether this impact differs by ownership type—public or private—and whether the relationship is impacted by COVID-19. We use a balanced panel of 30 banks from 2016 to 2022. The empirical results suggest that fintech adoption improves income diversification in private sector banks. However, we did not find such impact for public sector banks. The probable reasons are that private banks have better organizational responsiveness, regulatory flexibility and cost efficiency. The article shows that fintech impacts public and private banks differently. Our results also suggest that the COVID-19 pandemic did not change the diversification patterns. This finding signals the presence of structural factors. Our results have implications for both policymakers and banking sectors. We suggest targeted regulatory reforms and capacity-building measures to facilitate fintech adoption in public sector banks. These findings give insights for policymakers and bank managers driving the digital transformation initiatives in other emerging markets.