Title: Driving excellence in credit risk management practices in commercial lending - an empirical analysis of Indian public sector banks

Authors: Renu Arora

Addresses: Commerce Department, Mata Sundri College for Women, University of Delhi, Mata Sundri Lane, New Delhi 110002, India

Abstract: Credit decisions are investment decisions with uncertainty over future cash inflows. The credit/risk managers in banks have to make informed choices based on their risk perceptions about commercial borrowers and manage credit risk at operational, strategic and regulatory levels. This study has investigated the effectiveness of a wide array of credit risk management (CRM) practices of Indian public sector banks through statistical analysis of perceptions of their credit analysts. Based on a systematic and comprehensive review of CRM systems in these banks, the study concluded that the most functional CRM practices are - awareness about other banks' risk management systems, a strong loan appraisal and review mechanism, implementation of know your customer (KYC) norms, multi-tier credit approval process, risk-based appraisals, and controlling wilful defaults by all means. The study also observed that there are many statistically significant different managerial perceptions about several CRM practices and this might be affecting the decision-making and judgment process on loan appraisals, risk scoring, loan reviews and other critical CRM processes and procedures.

Keywords: mid corporates; credit scoring; risk analytics; non-performing loans; NPL; insider loans; wilful defaulters; limits management; skill gap analysis; tacit knowledge; core competency; India.

DOI: 10.1504/IJBCRM.2021.113946

International Journal of Business Continuity and Risk Management, 2021 Vol.11 No.1, pp.1 - 24

Received: 24 Jul 2019
Accepted: 19 Jan 2020
Published online: 05 Apr 2021 *

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