A Comparison of Credt Risk Management in Private and Public Banks in India

Like other corporations, banks want to create value and seek ways to control risk while aiming to enhance
productivity and performance. This is achieved by granting credits to customers from the money deposited
by the depositor, thus placing them at risk in the case of defaulting. Despite this risk, banks must continually
issue credit since it is the key source of its profitability. This research study assesses the impact of credit
risk management on Indian public and private banks during the 2009-2012 period. Using pooled OLS, fixed
effects and random effects, the study examines credit risk management in seven private banks and seven
public banks. The results show that private banks are more capitalized and more profitable than public
banks. In addition, in both cases asset quality measured using non-performing assets with negative
coefficients significantly influenced bank profitability. The study extrapolates the importance of regulatory
capital and the importance of risk management in ensuring stability in the financial industry.