Credit Risk Management Framework at Banks in India

Credit risk emanates from a bank’s dealings with an individual, corporate, bank, financial institution or a sovereign. The present paper is designed to study the implementation of the Credit Risk Management Framework by Commercial Banks in India. To achieve the above mentioned objective a primary survey was conducted. The results show that the authority for approval of Credit Risk vests with ‘Board of Directors’ in case of 94.4% and 62.5% of the public sector and private sector banks, respectively. This authority in the remaining banks, however, is with the ‘Credit Policy Committee’. For Credit Risk Management, most of the banks (if not all) are found performing several activities like industry study, periodic credit calls, periodic plant visits, developing MIS, risk scoring and annual review of accounts. However, the banks in India are abstaining from the use of derivatives products as risk hedging tool. The survey has brought out that irrespective of sector and size of bank, Credit Risk Management framework in India is on the right track and it is fully based on the RBI’s guidelines issued in this regard.