Credit Risk Measurement Practices in Indian Commercial Banks - An Empirical Investigation

Banking institutions have been facing variety of difficultiesbut the major cause of serious banking problems relates tolax credit standards for borrowers and counterparties, poorportfolio risk management, or a lack of attention to changesin economic or other circumstances that can lead to deteriorationin the credit standing of a bank’s counterparties. Although credit risk is an important factor that financialinstitutions should cope with, but the determinants of measuringcredit risk have been studied less. This paper attemptsto explore the determinants of credit risk measurement and toidentify the factors that contribute to credit risk measurementpractices in Indian banks and to compare credit risk measurementpractices followed by Indian public and private sectorbanks, the empirical study has been conducted and viewsof employees of various banks have been tested using statisticaltools. This study explored the phenomenon from differentperspectives and revealed that single-name credit riskmeasurement and portfolio credit risk measurement are thekey components that contribute to credit risk measurement inIndian banks. From the descriptive and analytical results, itcan be concluded that Indian banks efficiently measure creditrisk. The results also indicate that there is a significant differencebetween the Indian public and private sector banksin single-name credit risk measurement while, these banks donot significantly differ in portfolio credit risk measurementaspect.