Credit Risk Management Operations and Systems: Does Ownership Matter?

The credit risk management (CRM) operations and systems provide the tools, procedures and techniques to effectively perform the CRM process. The underlying objectives of implementing CRM operations and systems, namely, measuring risks underlying credit risk in a timely manner; ensuring that actual risk positions match with the defined acceptable total risk; applying risk mitigation measures in time if there is any breach of guidelines, as defined by the CRM policy, etc. make a strong case for an empirical study on the CRM operations and systems at the transaction level and at the portfolio level. Various recent studies have shown that the Indian banking sector now compares favourably with banking sectors in the region on metrics like growth, profitability and non-performing assets. Increased competition, deregulation of interest rates, more functional autonomy and operational flexibility to commercial banks in India make a strong case for investigating closely their CRM operations and systems. The present study offers an empirical evidence regarding impact of ownership on practices of commercial banks in India relating to CRM operations and systems, both at the transaction level and at the portfolio level and lists down significant difference in their strategies, if any. Using primary data from 35 Indian scheduled commercial banks (24 public sector banks and 11 private sector banks) the present study further compares them with benchmark practices in this regard. It also identifies specific CRM operations and systems at the transaction level and at the portfolio level that the public sector banks and the private sector banks in India should improve upon in the near future. The study shall be useful for bank management, regulatory authority, policy makers, bank depositors and academicians in gaining insight into the impact of bank ownership, an important distinguishing bank characteristic, on the CRM operations and systems.