Disintermediation in Financial Services: An Empirical Investigation of Indian Banking Sector

Indian Journal of Commerce, Vol. 59, No. 3, July-September 2006

11 Pages Posted: 27 Jun 2010

See all articles by D. Shome

D. Shome

affiliation not provided to SSRN

A. P. Pati

North Eastern Hill University

Date Written: June 2006

Abstract

The phenomenon of disintermediation has occurred throughout the world, in both developed as well as developing economies, somewhere early and somewhere later. Capital market has also gone through changes, with government and corporations opting for direct market borrowings and investors diversifying their portfolio internationally; thus leading to reduction of banks share in global stock. Study has been made in almost all the economies where disintermediation affected the banking sector.

So far as the Indian financial service sector is concerned, the observations made in this paper clearly bring out the growing evidence of diversification in the options available to the investors for parking their savings in different instruments. In this process bank’s deposit mobilisation has got a jolt, possibly in future more pressure will be found on this activity. Small scale savings and insurance products are making an inroad into the domain of bank deposits. On the other side, Indian corporate and individuals have found many other options for garnering the desired fund for fulfilling their need of resources and simultaneously the loan portfolio of the bank has been affected. The income from this portfolio is not even sufficient to meet the interest expenditure arising out of deposit, indicating a shortfall in the generation of adequate income from the primary activities. This has warranted a strategic shift in the banking focus areas. Banks have found to be increasingly investing in Govt. securities to get an assured rate of return, rather than investing in loan portfolio. This provides a clear indication of disintermediation in banking industry and in the financial service sector as well.

Keywords: Disintermediation, Banking

Suggested Citation

Shome, D. and Pati, Ambika Prasad, Disintermediation in Financial Services: An Empirical Investigation of Indian Banking Sector (June 2006). Indian Journal of Commerce, Vol. 59, No. 3, July-September 2006, Available at SSRN: https://ssrn.com/abstract=1630275

D. Shome

affiliation not provided to SSRN

Ambika Prasad Pati (Contact Author)

North Eastern Hill University ( email )

Umshing-Mawkynroh
Shillong
Meghalaya, 793022
India

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