A STUDY ON THE IMPACT OF CREDIT RISK ON THE PROFITABILITY OF STATE BANK OF INDIA (SBI)

Abstract

The study is aimed at investigating the impact of Credit risk on the profitability of the bank. Through extensive literature review, various factors that influence Credit risk are identified as Capital adequacy ratio (CAR), Nonperforming Asset ratio (NPA), Loan to Deposit Ratio (LDR), Cost per Loan Ratio (CLR), Provision Coverage Ratio (PCR), Leverage Ratio (LR), and Nonperforming Asset to Asset Ratio (NPAAR). Return on Equity (ROE) is identified as the indicator of profitability. The secondary data is collected from the Annual reports of the State Bank of India for twenty years (1997-2016). The data is analysed using multiple regression. The result showed that NPAAR alone have significant negative impact on ROE and other indicators of credit risk do not have significant impact on ROE. But overall credit risk has significant impact on profitability of State Bank of India. State bank of India faces credit risk due to inefficient Credit risk management. So it is advised to improve Credit risk management practices in State Bank of India. State Bank of India can minimise the Credit risk by reducing the Nonperforming assets by framing strict loan policies.