The ‘market discipline’ imposed by the listing of most public sector banks has also probably contributed to this improved performance. Public sector bank managements are now probably more attuned to the market consequences of their activities (Mohan, 2005). Since the late1990s, in line with the benign interest rate regime, both interest income and interest expenditure of banks as proportions of total assets have declined.
However, interest expenditure declined faster than interest income, resulting in an increase in net interest income. However, noninterest income, which emanates mostly from fee-based activities, has been increasing consistently in the post-reform period. For example, non-interest income as a proportion of total assets of the banking sector increased from 1.2 per cent in 1993 to more than 2 per cent in 2004 (Table 9).