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In a simple model, I demonstrate that the U-shaped relationship between income and income diversification typically found in developing countries can be explained without any risk considerations. It might be the result of pure income maximization in an environment with limited possibilities.

PurposeThe purpose of this paper is to examine the dynamics between income diversification and performance (cost, profit, revenue, technical, pure technical and scale efficiency) for 38 listed Indian banks within panel data framework during the period 2004-2005 to 2015-16.Design/methodology/approachThis study computes bank's cost, profit, revenue, technical, pure technical and scale efficiency within intermediation approach with data envelopment analysis (DEA) as a performance indicator, followed by exploring the association between income diversification and bank performance using truncated Tobit regression within panel data framework.FindingsTobit regression results revealed inverted U-shaped relationship between the income diversification and estimated efficiency parameters for the overall panel. Size and bank intermediation ratio seems to be a major factor in exploiting the potential benefits of income diversification. The author reconfirmed the inverted U-shaped relationship with these efficiency parameters for exclusive subsamples consisting of government-owned and private sector banks.Research limitations/implicationsInverted U-shaped relationship between the income diversification and estimated efficiency parameters suggest that banks should go for limited diversification to improve performance. Thus, regulators and banks should pursue limited diversification strategy for improving banking efficiency.Originality/valueThis study computes bank performance (cost, profit, revenue, technical, pure technical and scale efficiency) based on DEA followed by exploring the association between performance and income diversification for 38 Bombay stock exchange listed banks.

Introduction -- The Rise and Development of Non-traditional Banking Business in China -- The Impact of Income Diversification on Chinese Banks: Bank Performance -- The Impact of Income Diversification on Chinese Banks: Bank Risk -- The Impact of Income Diversification on Chinese Banks: Bank Efficiency. Conclusion.

"The paper examines, taking into account the urban-rural divides, the changes and welfare implications of income diversification in Zimbabwe following macroeconomic policy changes and droughts of the early 1990s. Data from two comparable national income, consumption, and expenditure surveys in 1990/91 and 1995/96 show that the percentage of households earning income from private and informal sources grew considerably while that from government and formal sources declined. In general, rural households tend to have a more diversified portfolio of income compared to urban and the degree of income diversification decreases with the level of urbanization. However, there are important differences in the level of diversification within the rural and urban areas, depending on wealth: while the relatively better-off households have a more diversified income base in rural areas, it is the poor that pursue multiple income sources in urban areas. A decomposition of changes in welfare indicates that the total contribution of income diversification is large and increased between 1990/91 and 1995/96 in both urban and rural areas. On the other hand, there were significant declines in returns to human and physical capital assets during the same period. The findings suggest that households with a more diversified income base are better able to withstand the unfavorable impacts of the policy changes and weather shocks. The fact that relatively better-off households have a more diversified income base following the shocks implies that the poor are more vulnerable to economic changes unaccompanied by well-designed safety nets." -- Author's Abstract ; Non-PR ; IFPRI1; MP-14; Theme 12 ; FCND