Abstract
The primary objective of this paper is to examine the risk management techniques and practices of credit risk management followed by Indian commercial banks for the period from 2021-17 to 2020-21. The other objective is to compare risk management practices followed by the public sector banks (PSBs) and private sector of banks (PVBs). The study uses a sample of twelve banks consisting of six largest public sector banks (PSBs) and six largest private sector banks (PVBs) for the study. The sample accounts for 78 per cent of the banking business of the country. The study finds that the scheduled commercial banks (SCBs) are facing credit risk, market risk and operational risk. The study finds that the credit risk management process and practices include risk identification, risk assessment, risk analysis, risk evaluation, risk monitoring and risk control. The study finds that private sector banks (PVBs) have better credit risk management practices as compared to that of public sector banks (PSBs). The PSBs have more NPAs than PVBs whereas PVBs have better asset quality and better profitability ratios than PSBs during the study period.
Highlights
The financial and banking sector serves the economic function of financial intermediation by ensuring efficient allocation of resources in the economy
The scope of the study is limited to credit risk management practices of public sector banks (PSBs) and five private sector banks (PVBs) for 5 years from 2017 to 2021
The research is based on the Indian banking sector covering both the public sector and private sector banks and with a sample covering six largest public sector banks (PSBs1) and six largest private sector banks (PVBs2) in terms of assets and banking business
Summary
The financial and banking sector serves the economic function of financial intermediation by ensuring efficient allocation of resources in the economy. Financial intermediation involves asset liability transformation, size transformation, maturity transformation and risk transformation. Risk is inherent in the banking business. The integration among the financial markets, increased globalization, emergence of new private sector banks and the rapid developments in financial technologies (Fintech) have contributed for the volatility of the interest rates, foreign currency exchange rates, and commodity prices. All banks try to achieve an appropriate trade-off between the risks and the returns. Banks must assess the banking risks such as credit risk, market risk (interest rate risk, foreign exchange risk, and liquidity risk) and operational risk properly, evaluate effectively, measure correctly, monitored perfectly and managed as per banks’ desired policies
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