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Abstract
Risk exposure in banking system has increased due to fierce competition, changing socioeconomic patterns, market flexibility, and increased foreign exchange business and cross border activities. These developments have resulted into various types of banking risks. Credit risk, earlier present in the banking system has also increased and Credit risk analysis has emerged as a big challenge for the Indian commercial banks. This paper attempts to identify the factors that contribute to Credit Risk analysis in Indian banks and to compare Credit Risk analysis practices followed by Indian public and private sector banks, the empirical study has been conducted and views of employees of various banks have been tested using statistical tools. Present study explored the phenomenon from different perspectives and revealed that Credit Worthiness analysis and Collateral requirements are the two important factors for analyzing Credit Risk. From the descriptive and analytical results, it can be concluded that Indian banks efficiently manage credit risk. The results also indicate that there is significant difference between the Indian Public and Private sector banks in Analyzing Credit Risk.
Keywords: Risk management; Banks; Credit Risk
Introduction
"Granting credit involves - accepting risk as well as pro during profits" ts "
-Bank for international settlements, Basel, Switzerland
There has been tremendous transition in the role of bank as a financial intermediary. Before liberalization all the activities of banks were regulated and hence operational environment was not conducive to risk taking. Now, banks have grown from being a financial intermediary into a risk intermediary. Banks are exposed to severe competition and hence are compelled to encounter various types of financial and non-financial risks. Risks and uncertainties form an integral part of banking which by nature entails taking risks. Banks are now required to clearly discriminate avoidable and unavoidable risks and are required to focus on the extent to which such risks can be taken by banks.
The banking reforms and policy changes during the years have gradually changed banking landscape and credit market in India. First visible change is that banks are now more customer focused and are providing innovative products at fast pace, Second change is that deregulation has made the banks free to formulate their own schemes and products as per their market segment and risk...