An analytical study of credit risk management in Indian commercial banks

Abstract

Risk is the fundamental element that drives financial behavior. Without risk, the financial system would be vastly simplified. However, risk is omnipresent in the newlinereal world. Financial Institutions, therefore, should manage the risk efficiently to survive in this highly uncertain world. The future of banking will undoubtedly rest on risk management dynamics. Only those banks that have efficient risk management system will survive in the market in the long run. The effective management of credit risk is a critical component of comprehensive risk management essential for long-term success of a banking institution. newlineCredit risk is the oldest and biggest risk that bank, by virtue of its very nature of business, inherits. This thesis examines the impact level of credit risk management towards the profitability of commercial banks in India, the performance of selected public and private sector banks and relation between NPA, CAR and ROA through multiple regression model. It argues that credit risk management has significant impact on profitability of banks of our country. To examine its impact level the researcher has developed two models by taking 11 years data of ROA, NPAs and CAR of public and private sector banks of India. To analyse the data multiple regression analysis has been used by taking ROA as dependent variable, NPA and CAR as independent variables. The researcher took twenty banks purposively. The public sector banks are namely- State Bank of India, Punjab National Bank, Oriental Bank of Commerce, Bank of India, Indian Bank, Indian Overseas Bank, Syndicate Bank, Bank of Baroda, Allahabad Bank, UCO Bank and private sector banks are Axis Bank, ICICI Bank, IndusInd Bank, ING Vysya Bank, HDFC Bank, YES Bank, Kotak Mahindra Bank, Karnataka Bank, ABN Amro Bank and Federal Bank, were selected. newlineThis study also tries to explore various parameters pertinent to credit risk management as it affect banks financial performance. Such parameters covered in the study were return on assets, non-performing ass