Abstract:
For banks and financial institutions, credit risk had been an essential factor that needed to be managed well. Credit risk was the possibility that a borrower of counter party would fail to meet its obligations in accordance with agreed terms. Credit risk; therefore arise from the bank’s dealings with or lending to corporate, individuals, and other banks or financial institutions. Credit risk had been the oldest and biggest risk that bank, by virtue of its very nature of business, inherited.Currently in India there were many banks in operation. From these some public sector banks are namely State Bank of India, Punjab National Bank, Oriental Bank of Commerce, Bank of India, Indian Bank, Indian Overseas Bank, Syndicate Bank, Bank of Baroda, Canara Bank, Allahabad Bank, UCO Bank, Vijaya Bank and private sector banks are Axis Bank, ICICI Bank, IndusInd Bank, ING Vysya Bank, Dhanlaxmi Bank, HDFC Bank, YES Bank, Kotak Mahindra Bank, Karnataka Bank, ABN Amro Bank, Federal Bank, Laxmi Vilas Bank were selected to examine the impact level of credit risk management towards the profitability of Indian commercial banks. To examine its impact level the researcher had used multiple regression models by taking 11 years return on asset (ROA), non performing asset (NPA) and capital adequacy ratio (CAR) from each bank. The researcher had collected data from RBI annual report since 2003 to 2013 for regression purpose.
Machine summary:
To examine its impact level the researcher had used multiple regression models by taking 11years return on asset (ROA), non performing asset (NPA) and capital adequacy ratio (CAR) from each bank.
Also intended to have a comparative study of Non Performing Assets (NPAs), Capital Adequacy Ratio (CAR), Return on Asset (ROA) of Private and Public Sector Banks in India.
RESEARCH METHOD The researcher used the data from private sector banks and public sector banks of India for analysis to examine the relationship between return on asset (ROA) which was performance indicators capital adequacy ratio (CAR) and non-performing assets (NPAs).
The researcher has conducted correlation and linear regression test between ROA & NPA and ROA & CAR of public and private sector banks.
The researcher had observed from correlation and linear regression test conducted between public sector and private sector banks by using variables ROA, NPAs and CAR.
It had been observed that in case of ROA and NPA for public sector banks, significance test that the slope was zero resulted in a t-value of 1.
The researcher had also been observed that in case of ROA and CAR for public sector banks, significance test that the slope was zero resulted in a t-value of 2.
/ / Figure 8: Residuals of ROA vs CAR CONCLUSION This study shows that there was a significant relationship between bank performance (in terms of return on asset) and credit risk management (in terms of nonperforming asset).