Parameterizing Credit Risk Management System in Commercial Banks of India

Dr. Shweta Shrivastava; Niyati Anand

Abstract

Credit risk is the possibility that a financial institution may lose money if a borrower's circumstances worsen to the degree where an asset's value (including off-balance-sheet assets) is reduced or eliminated. The goal of this work is to make clear the challenges caused by past-due loans so that they can be utilized as a further tool to comprehend the elements of commercial banks' (CBs') credit risk management (CRM) systems in developing economies. This was accomplished by utilizing data from CBs and other important management figures who deal with credit management, both primary (interviews) and secondary (a number of pertinent papers). The analysis demonstrated that credit risk may be controlled and reduced when strong strategic methods are adopted. This suggests that for a CRM system to be effective, a bank's strategy must be taken into account. There is evidence that effective CBs drive economic growth, but ineffective financial institutions hinder economic growth and worsen poverty Risks faced by commercial banks can be divided into three categories: financial [of which credit risk (CR) is a component], operational, and strategic. The performance of CBs is affected in various ways by these hazards.