Integrated risk management in the Indian banking sector and impact of credit risk management on the banks’ profitability

Abstract

The emphasis, on risk management at banks, is growing globally and there is an urgent need for scheduled commercial banks in India, to integrate risk management processes with business and operating models. In addition, banks will also have to significantly enhance its stress testing capabilities and increase their knowledge on risk-management related, data requirements and analytics. The risk management processes at banks, need to be better integrated with their business and operating models. For this, risk management needs to be viewed as a key part of strategy and operations and go well beyond merely being a compliance exercise. Besides, there is a need to incorporate risk-based capital performance measures and stress testing more centrally into business decision-making processes. The purpose of this research is to investigate whether a relationship exists between credit risk management and profitability of scheduled commercial banks in India. In order to test our hypothesis, we used multivariate regression. Findings indicate that there is a positive relationship between credit risk management and profitability of scheduled commercial banks.