Measurement and Comparision of Credit Risk Management Practice of Public and Private Banks Using Lending Ratios
Keywords:
Credit Risk Management Practices (CRMP), Banking Sector, Credit Risk Tools, IndiaAbstract
One of the most important service sectors for the development of Indian economy is the banking sector. Any harm to the banking sector will endanger the Indian economy. This harm can be due to improper management of Credit Risk Management Practices (CRMP) resulting into increased NPA’s. This demands a need for proper use of credit risk measurement tools such as lending ratios for management of credit risk. In practice, the application of credit risk measurement tools vary from bank to bank. Therefore, the present study is based on the aim, to measure the Credit Risk Management Practices of public and private banks using lending ratios as a credit risk measurement tools. The hypothesis for the present study states that, there is significant difference in the credit risk management practices used by public and private banks in India. The study used Independent sample T-test and ANNOVA on eight lending ratios to seek the significant mean difference in the CRMP of public and private banks in India. The result reveals that, although there is similarity in the trend of certain ratios over the thirteen years period under study, the sector wise comparison showed statistical significant differences between the public and private banks with regards to certain six lending ratios used in the paper. However there was no significant difference in the other two ratios used in the paper. The study can be further extended to cover other lending ratios that have impact on the credit risk and can include foreign banks in the other studies.
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