The banking industry realizes that a vital and profitable segment of its clientele demands a significant online presence that complements the traditional “bricks and mortar” presence. A virtual minefield of traditional and new issues and risks arises as banks adopt 24/7 transactional websites in their pursuit of a “clicks and bricks” strategy. Banks face operational, security, legal, and reputation risk with their foray into online banking. An innovative and proactive approach to risk management is essential as banks move into this new territory. Recent regulatory and legislative developments suggest that as electronic banking evolves, the earlier regulatory stance of “self-regulation” appears to be changing to one of increased scrutiny.

We examine the impact of ownership on income diversification and risk for Indian banks over the period 2001–2009. We investigate both the determinants of non-interest income and the impact of diversification on various profitability and insolvency risk measures for public sector, private domestic, and foreign banks. We document that ownership does matter in the pursuit of non-interest income. Relative to private domestic banks, public sector banks earn significantly less fee-income, while foreign banks report higher fee income. Public sector banks with higher levels of governmental ownership are significantly less likely to pursue non-interest income sources. Fee-based income significantly reduces risk, measured by profitability variables, for public sector banks. Default risk is also reduced for these banks. From a regulatory perspective, it appears that diversification benefits India’s public sector banks. Our research has implications for the changes in the risk profile for banks in emerging banking markets pursuing non-interest revenue sources.

While the literature reports improved performance for privatizing firms, banking markets are different. Many privatizing financial services firms face unique problems such as an overhang of problem loans and weak credit cultures and legal systems. We investigate the returns to successful bidders in privatization acquisitions of financial services firms, examine short-horizon performance, and test whether such acquisitions result in a change in risk for the bidding firm. Our results show that the cumulative abnormal returns to shareholders of bidding firms are positive, perhaps reflecting initial optimism that the foreign firm acquiring the privatizing firm would share in the success associated with privatization. Bidders also experience an increase in their total risk following the acquisition.