Short Communication: Indian Public Sector Commercial Banks: An Empirical Analysis of Bank-Specific Determinants of Credit Risk

Abstract

The public sector banks dominate India’s financial sector and play a crucial role. Commercial banks are indispensable in the processes of capital circulation, capital integration, capital resource allocation, and overall societal demand and supply adjustment. But performing these vital roles, the commercial banks are associated with different risks out of which credit risk hampers them a lot. This risk attacks the major pillar of the banking industry i.e., solvency on which the industry survives. In this paper, a modest attempt is made to identify the bank-specific determinants of credit risk in the public sector commercial banks in India. Data was collected from the RBI database for the period 2005 to 2020 for 13 banks. Variables pertaining to credit risk, bank size, capital adequacy ratio, profitability, liquidity and diversification were taken. These variables were analysed with the help of different panel data analytical tools. The size of the bank, represented by the log of total assets, and diversification, measured as the ratio of non-interest income to total income, were found to positively and significantly influence credit risk in public sector commercial banks. The Return on Asset, Loan-deposit ratio, and Capital adequacy ratio were found to be negatively correlated with credit risk.

DOI: https://doi.org/10.21863/ijbri/2024.12.2.007

Keywords: Credit Risk, Bank Specific Determinants, Public Sector Commercial Banks

View PDF