Risk Management and Efficiency of Commercial Banks- A Review of Literature

As the emphasis on employing effective risk management practices have become crucial for the banks because of the reforms that have taken place in the financial sectors of almost all the economies, it becomes important to study the changes in the performance of the banks that has taken place over time, specifically after the reform process. Thus, our review of literature will mainly be focussing on the studies measuring the performance and efficiency of the banking systems and their determinants. A wide range of studies have been carried out in India and other foreign countries to analyse the performance of commercial banks, which are discussed in this paper. Available literature has been classified under six different categories. Some of the conclusions are as follows: first, one of the most common techniques used for measuring performance of banks is the concept of efficiency under Data Envelopment Analysis (DEA) Approach. Second, in Indian context it was found that, new private and foreign banks were found to be most efficient followed by old private and public banks respectively. Third, it was found that the performance of banks moves positively with reduction in transaction cost, settlement cycle, better service quality, intellectual capital, return on assets, CAR and negatively with NPAs.