Impact of Credit Risk Management on the Financial Performance of selected Public and Private Sector Banks in India

Banks are said to be the financial pillars of the as they play a very important role in the economic development of the nation. Banks are designated the basic duty of accepting deposits and lending credit to the society. Banks need to face different types of risk in this process which affects its financial performance. Credit risk is the most important type of risk faced by the banks which arises due to non-payment of loans. This present paper seeks to study and compare the impact of credit risk management on the financial performance of the banks. Credit risks are measured in terms of Capital Adequacy Ratio (CAR) and Credit Deposit Ratio (CDR). Net Profit Margin (NPM) is taken as a measure for financial performance of the bank. The top ten banks from public and private sector each are chosen on the basis of market capitalization rate. The panel data from the period 2013-14 to 2017-18 are selected and analyzed using the SPSS 21.0 package. The study shows that CAR and NPM are significantly correlated however CDR and NPM tough positively correlated the impact of CDR was found to be significant only when both sector banks are taken together. The study recommends that banks need to pay due attention to all these ratios in order to avoid further credit risks.