On the other hand, the change in physical capital cost per unit of output has been marginal, reflecting the fact that Indian banks maintained a steady flow of investments towards physical capital formation, especially on automation and information technology. From the efficiency standpoint, the intermediation cost needs to be viewed in conjunction with noninterest income.
Till 2001, the burden (the excess of non-interest expenditure over non-interest income as a percentage to total assets) of commercial banks hovered around 1 to 1.5 per cent. This gap between intermediation cost and income from fee-based activities has narrowed considerably in recent years.